JAKARTA: Bank Indonesia has almost all reasons to back up a hike potential in the benchmark rate on next Friday's meeting by 25 bps, Citi Economics Asia Pacific wrote in a report. "We think there is 70% probability BI will hike by 25bps on Friday Our recent BI meetings indicate that chances it will hike have increased; we subsequently changed our call last Friday," it said.In the meantime, it highlighted the recent inflation data which is a mixed bag: elevated headline but relatively subdued core. "We still believe BI will tilt toward hiking by 25bps on Friday to safeguard credibility amid the likely persistence of headline inflation beyond their target, the rising risks this feeds into core, the sharp sell-off in bond markets amid growing inflation worries and the hikes/hawkishness of neighboring central banks."Citi gives its insight that consequences for BI not hiking this Friday would be far worse in undermining credibility and damaging market sentiment. "If BI thinks it will more than likely have to hike eventually, why wait?" wrote Citi.January's inflation printsw ere above expectations at 7.02%YoY (0.89%month-to-month), higher than consensus (6.81% year-on-year, 0.71% month-to-month), but closer to Citi's forecast at 6.9% year-on-year and 0.8% month-to-month. Teh figure remains well above the BIs target threshold of 4%-6% for three months in a row (5 of the last 7 months). However, core inflation moderated to 4.18% year-on-year, lower than consensus at 4.3%. "If BI hikes on Friday, we think that could provide some support to the long end. Otherwise, we think no hike would mean curve bear steepens," it said. (NOM)
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