Bank Indonesia likely to hike again only in December this year; holds benchmark rate in October meeting

Bank Indonesia (BI) is expected to hike again only in December this year, while holding on to its benchmark interest rate on hold at its October policy meeting, according to the latest research report from OCBC Bank.

The central bank held the benchmark rate at 5.75 percent as expected following the October round of their two days long policy meeting. Market reaction immediately after the announcement was generally muted with not much change in the USD – IDR value, the Indonesia government 10-year bond generic bid yield nor of the Jakarta Composite Index (JCI).

As expected too, the press statement had said that the decision was consistent with efforts to reduce the current account deficit levels and maintain the attractiveness of the domestic financial markets. It also mentioned that the Domestic Non-Deliverable Forward (DNDF) will come into effect from November 1, 2018.

December is also the month when a widely expected Fed hike may occur. Governor Perry Warjiyo has constantly reiterated throughout this year that the central bank must be “pre-emptive, front-loading and an ahead of the curve step” especially “amid the trend of rising global interest rates”.

The press statement noted that the growth coming out weaker than BI expected was mainly due to a decline in net exports. The central bank also mentioned in the statement that consumption was strong, backed by maintained public purchasing power, election spending and more upbeat consumers. They did say that investment performance for the quarter was solid, due to investment in infrastructure projects and both the property and non-building sector, the report added.