Bank Indonesia policy rates to rise soon

Today’s decision by Bank Indonesia (BI) to hold its reference rate steady at 6.75% was anticipated given recent downside surprises in headline inflation. However, core inflation continues to climb while the economy is set to grow at an above-trend pace in 2011-12. The upshot is that we believe the reference rate will be raised soon. We forecast a hike in June, followed by more tightening this year.

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