Bank Indonesia (BI) left its reference rate at 6.75% today, as was universally expected. Nonetheless, inflation remains uncomfortably high while the economy is set to grow at an above-trend pace in 2011-12. The upshot is that the pause in BI’s tightening cycle is likely to be short-lived. We expect the reference rate to be raised in May or June, followed by hikes later this year.
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