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The Bank Indonesia (BI) is expected to remain on hold throughout this year, closely peering through the rise in the country’s inflation.
Higher anticipated GDP growth (2017 forecast of 5.4 percent versus 2016 forecast of 5.0 percent) along with the phased removal of 900 VA electricity tariff subsidies will contribute significantly to the inflation climb in 2017.
Furthermore, potentially higher commodity prices in oil and food portend upside risks to tradable inflation. Although inflation is on a significantly higher glide path, it will still average within Bank Indonesia’s (BI) 3-5 percent year-end target.
Higher inflation will constrain policy space for the central bank to cut rates. On the flip side, BI is unlikely to hike rates in response to administered price adjustments.
"We maintain our view that BI will remain on hold throughout 2017," ANZ Research said in its latest research publication.
