JAKARTA: Indonesia's central bank is ready to hike its benchmark interest rate and sees inflationary pressures continuing to pick up, said governor Darmin Nasution on Friday, Jan 14.
This was the strongest indication yet from Bank Indonesia (BI) that it may need to hike rates from a record low 6.5 percent to head off inflation that hit a 20-month high in December.
"The direction is to raise rates but it will depend on inflation," Nasution told reporters. "BI is ready to find the appropriate time to increase the BI rate."
"Inflationary pressures will continue to pick up and will affect core inflation," he said.
A central bank deputy governor told Reuters last month that BI would not hesitate to tighten policy if core inflation neared 5 percent.
Nasution said the central bank will also let the rupiah strengthen to a certain level in a gradual manner, without giving a level.
Strong investment flows pushed the rupiah up nearly 5 percent last year, helping mitigate inflation by making imports cheaper.
The central bank said last week it was confident that core inflation this year will not surpass 5 percent, in comments that helped trigger a sell-off in the bond and equity market as investors worried the central bank would be behind the curve in tackling inflation.
Analysts have called on the central bank to hike rates by March or April.
"This could be an indication from BI. We expect them to raise rates in March by 25 basis points," said Eric Sugandi, an economist at Standard Chartered in Jakarta. - Reuters
This was the strongest indication yet from Bank Indonesia (BI) that it may need to hike rates from a record low 6.5 percent to head off inflation that hit a 20-month high in December.
"The direction is to raise rates but it will depend on inflation," Nasution told reporters. "BI is ready to find the appropriate time to increase the BI rate."
"Inflationary pressures will continue to pick up and will affect core inflation," he said.
A central bank deputy governor told Reuters last month that BI would not hesitate to tighten policy if core inflation neared 5 percent.
Nasution said the central bank will also let the rupiah strengthen to a certain level in a gradual manner, without giving a level.
Strong investment flows pushed the rupiah up nearly 5 percent last year, helping mitigate inflation by making imports cheaper.
The central bank said last week it was confident that core inflation this year will not surpass 5 percent, in comments that helped trigger a sell-off in the bond and equity market as investors worried the central bank would be behind the curve in tackling inflation.
Analysts have called on the central bank to hike rates by March or April.
"This could be an indication from BI. We expect them to raise rates in March by 25 basis points," said Eric Sugandi, an economist at Standard Chartered in Jakarta. - Reuters
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