Macroeconomic Forecast Indonesia

Despite the strong domestic economy, we believe that Indonesia's central bank is likely to embark on a gradual monetary tightening cycle beginning in Q310, taking the benchmark Bank Indonesia (BI) rate from the current 6.50% to 7.50% by end-2010. Indeed, there appears to be limited price pressures thus far and aggressive rate hikes may unwittingly place pressure on the rupiah to appreciate, an event that BI is probably keen to avoid in order to support the country's exporting industries.

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