Further aggressive rate hikes in Indonesia unlikely

Bank Indonesia (BI) today hiked both its main policy rate and the Fasbi rate by 50bp amid concerns about the currency and the outlook for inflation. Consumer price inflation is likely to rise as high as 8% y/y in the coming months after the government pushed ahead with plans to scale back its fuel subsidy regime. However, the inflation spike should prove temporary and so does not justify an aggressive tightening cycle.

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