May 28, 2018 / 9:36 AM / 20 days ago

Indonesia central bank seen raising key rate at out-of-cycle meeting

JAKARTA (Reuters) - Indonesia’s central bank will raise its benchmark interest rate for the second time in two weeks at an out-of-cycle policy meeting on Wednesday, according to a Reuters poll.

Bank Indonesia (BI) announced on Friday that it would hold an additional policy review on May 30, for its board of governors to discuss recent economic and monetary conditions.

Sixteen of 18 analysts surveyed by Reuters on Monday predicted BI would raise its main rate IDCBRR=ECI by 25 basis points (bps), taking it to 4.75 percent.

One analyst predicted a 50 bps increase to 5.00 percent on Wednesday, and another, Taye Shim of Mirae Asset Sekuritas, said BI will stand pat to monitor the effect of the 25 bps increase - the first since 2014 - that it made on May 17.

Euben Paracuelles, a Nomura economist, said BI “tends to deliver some policy adjustments when it calls for such meetings”.

He noted that at an extraordinary meeting in August 2013, BI raised the key rate 50 bps amid a tightening cycle to fend off capital outflows.

In an unscheduled meeting in November 2014, BI also hiked its key rate, by 25 bps, to anchor rising inflation expectations.

On Monday, top Indonesian officials sought to shore up confidence in Southeast Asia's largest economy, saying their short term focus is to stabilize markets, a message that sent the rupiah to a two-week high, bond yields down and the benchmark stock index .JKSE up.

Perry Warjiyo, sworn in last week as BI’s governor, said Wednesday’s meeting is a “pre-emptive” move ahead of the Federal Reserve’s mid-June policy review. The Fed is expected to raise U.S. interest rates.

Joseph Incalcaterra, an economist at HSBC, said Monday’s advances on Indonesian markets meant BI’s pre-emptive stance is being rewarded. “It thus appears that the hike is widely priced-in by domestic and foreign market participants,” he said.

    Reporting by Gayatri Suroyo, Nilufar Rizki and Tabita Diela; Editing by Richard Borsuk

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