JAKARTA – RHB Research expects Bank Indonesia will increase its overnight policy rate (OPR) to 4.25% in the second half of this year, up from its initial forecast of 4% on the back of expected higher inflation.
In its global economics and market strategy note today, the research house said core inflation in August has crossed 3%, the fastest pace in three years.
Lawmakers have cited that subsidised fuel prices might increase by between 30 and 40% from the current Pertalite price of 7,650 rupiah (approximately RM2.30) per litre.
Thus, the headline inflation could cross 7% from the current forecast of 5% should fuel prices increase within that range.
“This would then suggest that further rate hikes to 4.25% may be necessary to arrest higher consumer prices,” RHB Bank’s senior economist Barnabas Gan said.
However, RHB Research has maintained its inflation forecast of 4% this year with upside risks amid potential fuel prices increase in the fourth quarter or early October because the Pertalite subsidy quota of 23 million kilolitres is expected to run out by then.
It pointed out that the risk of price hikes for Solar (diesel) and subsidised liquified petroleum gas might also be seen then, which would clearly tilt consumer price index (CPI) risks to the upside in the fourth quarter.
Beyond higher fuel prices, transport and food prices are key drivers of CPI for the second half as the sectors contributed the most to August’s inflation amid higher global food and oil prices seen year-to-date. – Bernama, September 2, 2022
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