A view of Indonesia’s Central Bank building in Jakarta. REUTERS/Supri/File photo
BENGALURU – Bank Indonesia (BI) will keep its key interest rate unchanged at 5.75 percent for a fifth consecutive meeting on Thursday and for the rest of the year, as inflation eased in May and was expected to decline further, a Reuters poll of economists found.
After peaking around 6 percent in September, inflation gradually eased to reach the upper end of BI’s 2-4 percent target range last month, suggesting BI can wait and watch, even as policymakers in the U.S. and Europe are likely to continue tightening policy.
All 34 economists in the June 14-19 Reuters poll expected the central bank to hold its benchmark seven-day reverse repurchase rate at the conclusion of its June 21-22 meeting.
Nearly two-thirds of respondents, 15 of 23, said the key policy rate would remain at that level for the rest of 2023, with eight economists expecting a rate cut this year.
“Bank Indonesia was one of the first central banks in the region to pause its tightening cycle earlier this year. We believe BI will carry out an extended pause to shore up support for the Indonesian rupiah,” said Nicholas Mapa, senior economist at ING.
Mapa added BI would “only consider cutting policy rates should global central banks opt to ease monetary policy.”
Similar to its regional peers, BI was expected to leave rates where they are for the remainder of the year as rate cuts would lead to a weaker currency and higher imported inflation.
The Indonesian rupiah, one of the best-performing Asian currencies, is up over 4% against the dollar this year.
“While the central bank’s next rate move is likely to be a cut, the timing of an easing pivot will depend on external conditions, with clear signs that the U.S. Fed is at least on a prolonged pause a pre-requisite, in our view,” said Khoon Goh, head of Asia research at ANZ.
“Our base call is for BI’s first cut to materialize in 2024; robust consumer sentiment and flush liquidity conditions in the banking system also suggest no urgency for a quick pivot.”
Median forecasts showed a 25-basis-point rate cut to 5.5 percent in the first quarter of 2024, a slight downgrade from the 50-basis-point cut expected in a May poll.