Bank Indonesia, the central bank of Indonesia, is expected to continue raising the policy rate. The bank aims to anchor inflation expectations and return core inflation closer to the middle of its 2% to 4% target range by the first half of 2023. Inflation expectations remain elevated at around 5.9% for year-end.
The monetary tightening is likely to negatively affect banks’ net interest margins, according to Fitch Ratings. The rating agency expects the rise in funding costs to outpace asset yields as the policy rate rises. However, the banks’ overall profitability should remain healthy.
