By Shaloo Shrivastava

BENGALURU, (Reuters) – Indonesia’s central banks will not raise rates in order to foster economic growth until the second half, despite the fact that the U.S. Federal Reserve is expected to tighten monetary policies as early as March according to a Reuters poll.

Perry Warjiyo, Governor of Bank Indonesia (BI), stated at December’s meeting that normalization in policy would not follow Fed moves and that interest rates will remain low until the inflation rises.

Contrary to the United States where inflation has reached a forty-year peak, the inflation rate in Southeast Asia’s largest economic region is below that of the central bank for 19 months. That gives it the flexibility to maintain steady rates.

Bank Indonesia was expected to maintain its benchmark 7-day reverse purchase rate of 3.50%, according to all 30 economists. This record low came at the Jan. 19-20 policy session.

Josua Perdede (chief economist at Bank Permata) stated, “We think BI’s policy rate will remain at 3.50% for this month. Taking into account that inflationary tension still remains subdued.”

However, Fed officials have signaled a Fed rate increase this quarter. BI will feel pressure to start its own tightening cycle quickly to avert currency weakness or large capital outflows.

A Jan. 11-17 Reuters poll showed that BI would raise its seven-day repurchase price by 50 basis point in the second quarter of 2012. This was in two stages: 3.75% in third quarter and 4.00% fourth.

“While BI may prefer to keep the policy rate stable to support the economy, the central bank could still be forced to hike earlier than we assume if a more hawkish-than-expected Fed leads to a substantial depreciation of the IDR,” noted economists at Barclays (LON:).

Despite an increase in commodity prices, the Indonesian rupee has been stable. It was among emerging Asia’s top performers and declined only 1.5% to $1.

Although Indonesia reported a trade surplus in May 2020, the surplus fell to 20% in December. This is its lowest in 20 months. The government’s coal export ban made economists cautious. This could lead to the trade deficit.

Krystal Tan from ANZ, an economist, stated, “The trade surplus might have peaked and market volatility could rise as U.S. Fed decreases monetary support which may impact portfolio flow into Indonesia.”

On balance, an orderly U.S. Policy Normalization will probably see IDR weather the episode well. However, any hasty actions to stop inflation could increase market uncertainty.

Inflation was also forecast to rise according to the poll. However, it would remain within the BI’s target range at 2.9% and 3.1% respectively for 2022-2023.

The economy of Indonesia grew by 4.7% during the third quarter and 3.5% over the entire year. Estimated growth of 5.1% for the entire year in this year and next is