Bank Indonesia nears end of rate-hike cycle but to add 25 bps on Jan 19

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reuters://realtime/verb=Open/url=cpurl%3A%2F%2Fapps.cp.%2FApps%2Fcb-polls%3FRIC%3DIDCBRR%253DECI poll data

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23 of 29 economists predict 25 bps hike on Jan. 19; 6 expect no change

BENGALURU, Jan 17 (Reuters) - Bank Indonesia will deliver another 25 basis points interest rate hike on Thursday as it tries to bring inflation under control without having a big impact on economic growth, a Reuters poll of economists forecast.

Inflation has been largely cooling since September, but December's reading of 5.51% was still above Bank Indonesia's target range of 2%-4% that the central bank established in 2005.

With a slower pace of rate hikes predicted from the U.S. Federal Reserve this year, the pressure on the rupiah - which lost around 10% against the dollar in 2022 - is expected to subside, providing room for BI to scale down its pace of tightening.

Nearly 80% of economists, 23 of 29, in the Jan. 9-16 poll expected Bank Indonesia to hike its benchmark seven-day reverse repurchase rate by 25 basis points to 5.75% at its Jan. 19 meeting. The remaining six predicted no change.

"With inflation past its peak, and the U.S. Fed expected to dial down its rate hike cycle, the urgency to undertake aggressive rate increases in Indonesia has also eased," wrote Radhika Rao, an economist at DBS.

"With the currency yet to participate in the regional currency rally and inflation above the official target, BI has opted to maintain a tightening bias but downshift to incremental and less forceful increases of 25 basis points."

SOFTER APPROACH

The survey predicted BI taking a softer approach with rates, with no clear majority on where rates would peak.

Half of the respondents, 12 of 23, who had a view expected Indonesia's policy rate to reach 6.00% or higher by end-March, a quarter point higher than in a December poll.

However, median forecasts showed the benchmark key policy rate topping out at 6.00% and staying there until end-2023, suggesting BI was near the end of its rate hike cycle.

"Domestic inflation dynamics remain reasonably benign and do not warrant outsized rate hikes. Although headline and core inflation edged up in December, the latest weekly survey suggest overall inflation softened at the start of 2023," noted Khoon Goh, head of Asia research at ANZ.

"Overall, we expect the central bank to match the U.S. Fed with two 25bp hikes in Q1 2023 given its FX stability mandate."

The survey showed inflation was expected to average 4.1% this year and then fall to 3.0% - the mid-point of BI's target range - by end-2024.

While an export boom helped Indonesia's economy last year, economists expected growth to moderate as tighter monetary policy across the world weighs on global demand.

Indonesia's economy was expected to grow 4.8% this year and 5.0% next, slower than the predicted 5.3% for 2022.

"Having frontloaded a sizable degree of rate hikes we think falling inflation and slower growth are likely to prompt BI to conclude its tightening cycle in the first quarter of 2023," said Shivaan Tandon, emerging Asia economist at Capital Economics.

(For other stories from the Reuters global long-term economic outlook polls package:) (Reporting by Anant Chandak; Polling by Veronica Khongwir and Madhumita Gokhale; Editing by Hari Kishan, Jonathan Cable and Alex Richardson)