Bank Indonesia seen to stay put till year-end, cut in Q2 2024
Workers leave Bank Indonesia headquarters in Jakarta, Indonesia, Sept 2, 2020. REUTERS/Ajeng Dinar Ulfiana/File photo
BENGALURU – Bank Indonesia (BI) will follow its regional peers and leave its interest rate unchanged on Oct. 19, staying on the sidelines for longer than previously expected, a Reuters poll found.
With inflation at a 19-month low of 2.28 percent in September, firmly within BI’s 2-4 percent target range, all 36 economists in the Oct. 10-16 Reuters poll said the central bank would leave its seven-day reverse repurchase rate at 5.75 percent on Thursday for the ninth consecutive meeting.
However, a weakening rupiah – down around 7.5 percent from a 2023 high of 14,560 per dollar hit on May 4 – was likely to keep the central bank from easing anytime soon.
Earlier this month, the central bank intervened in the foreign exchange market and bought government bonds to stabilize the rupiah.
READ: Indonesia central bank intervenes to defend rupiah, open to buying bonds
Article continues after this advertisement“BI along with most global central banks are just going to try and wait out the volatility we have seen in global markets recently, particularly in the U.S. Treasury markets,” said Lavanya Venkateswaran, senior Asean economist at OCBC Bank.
Article continues after this advertisement“More so because the currency has been under some pressure and there has been a relative underperformance compared to regional peers in the last week or so.”
READ: Bank Indonesia signals steady rates as authorities try to calm markets
While nearly 80 percent of economists, 23 of 29, predicted BI would keep rates at 5.75 percent for the year, median forecasts showed the first 25 basis point cut to come in Q2 2024.
Just a month ago, the consensus was for policy easing to start in Q1 2024.
“We only expect BI to cut rates if there has been a clear signal/forward guidance from the Fed that it would begin to ease policy. This may not happen until around Q2 next year or later,” wrote Barra Kukuh Mamia, senior economist at Bank Central Asia.
Indonesia’s economy is forecast to expand 5 percent this year, down from 5.3 percent in 2022, but within the BI’s growth target range of 4.5 percent-5.3 percent. It is expected to again grow 5 percent in 2024.
