Manulife Predicts BI Will Raise Reference Interest Rate To 4.25 Percent In The Third Quarter Of 2022

Bank Indonesia Building. (Photo: Doc. Antara)

JAKARTA - PT Manulife Aset Manajemen Indonesia (MAMI) Chief Economist & Investment Strategist Katarina Setiawan estimates that Bank Indonesia (BI) will increase the BI 7 Day Reverse Repo Rate two to three times in the second semester of 2022 starting in the third quarter of 2022.

"We estimate that the BI interest rate will range from 4.00 to 4.25 percent by the end of this year with the increase starting in the third quarter of this year," said Katarina, quoted from Antara, Tuesday, August 9.

Bank Indonesia does not need to be in a hurry to raise the benchmark interest rate because the rupiah exchange rate has not depreciated as much as other currencies and Indonesia's core inflation which reached 2.86 percent in July 2022 is still in the government's estimated range of 2 to 4 percent.

"We see Bank Indonesia will gradually increase interest rates starting in the third quarter of 2022 to maintain the attractiveness of Indonesia's financial assets, but it doesn't need to be as aggressive as the Fed," he said.

Even though the inflation rate will subside due to the decline in commodity prices, BI is expected to continue to raise interest rates to maintain a distance between its interest rates and the interest rates of the Fed and other central banks.

Currently, Bank Indonesia's benchmark interest rate is at 3.50 percent, while the US central bank's interest rate is 2.50 percent.

However, the increase in BI interest rates will not be carried out aggressively considering that inflation is under control and the national economic recovery is still maintained and grew 5.44 percent year on year in the second quarter of 2022.

"So because economic growth has been very good, Bank Indonesia wants to be very careful in raising interest rates. We see there are other initiatives to maintain money circulation through increasing the Statutory Reserves (GIR) and open market operations," he added.