FASBI deposit rate hike looms in Indonesia

An 75bps increase is expected in mid-2013.

According to DBS, the central bank (BI) is not expected to change the policy rate, but there is an increasing chance of a hike in the FASBI deposit rate. Despite the low inflation print, the central bank (BI) is likely to maintain a mild tightening stance.

Here's more from DBS:

Stress in the economy has been reflected in the widening trade deficit and the sizable current account deficit. In fact, the trade deficit widened to a record USD 1.5bn in October on the back of a surge in imports after improving for several months.

In order to cool the domestic economy (and reduce import pressures), the central bank (BI) is expected to hike the FASBI deposit rate by 75bps by mid-2013, while keeping the policy rate unchanged.

Higher short-term interest rates should also help to attract inflows and stabilize the external accounts. Some macro-prudential measures (stricter conditions on home and vehicle loans) have already been utilized by BI earlier this year.

It has also been announced that the more stringent conditions will also be applied to Shariah financing in April 2013. More incremental measures will likely be forthcoming if the trade balance does not improve.

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