By Shaloo Shrivastava

BENGALURU (Reuters), – Indonesia’s central banking will speedily raise rates as worries mount over a weaker rupiah. The Federal Reserve is gearing up to increase its interest rate next week amid soaring U.S. inflation, according to a Reuters poll.

However, Indonesian inflation has been relatively benign, rising to 2.18% for January. This is after the inflation rate of 22%-4% that was recorded in most major economies.

The 26 polled economists expected BI would maintain its seven-day benchmark reverse repurchase rate of 3.50% after its policy meeting.

A majority of respondents (8 out of 20) expected a rate hike in the coming quarter. But medians for the current poll predict 50 basis points of tightening between July-September. This compares to the 25 basis point increase in the fourth and third quarters according to a January poll.

Bank Danamon’s economist Irman Faiz said that if the inflation rate is rising and there is more external pressure than previously expected they should adjust their rates by 50 basis point in the third quarter.

The median prediction was not for any move in the last quarter. However, the predictions of economists were close to reality.

Eighteen of the 17 respondents saw BI’s key interest rate as being at 4.25% and higher. Two others said 4.50%. Sixteen respondents said 4.00% and two others said 3.75%. One respondent stated that BI would maintain the current 3.50% all year.

However, much of this will be dependent on how well the Indonesian Rupiah does. This year’s currency was relatively stable, with a 1% decline against the dollar. Six weeks ago, Reuters conducted a poll that showed the rupiah was trading at its current level in 12 months.

ING economists noted that the trigger points for BI’s shift from an accommodative stance towards one that is more price-oriented “would be accelerating inflation and depreciation pressure on Indonesian rupiah tied to Fed tightening.”

Central bankers in emerging markets are monitoring the Fed to see if its tightening cycle causes capital outflows.

Southeast Asia’s biggest economy grew 5% in 2021’s final quarter, slightly more than a Reuters poll median. The recent rise in COVID-19-related infections could prompt policymakers not to be too cautious.