Bank Indonesia to stay put on Jan 17, no cut until at least Q3

Bank Indonesia’s logo is seen at Bank Indonesia headquarters in Jakarta, Indonesia, Sept 2, 2020. REUTERS/Ajeng Dinar Ulfiana/File photo

BENGALURU  – Bank Indonesia (BI) will keep its key interest rate unchanged at 6 percent on Wednesday and until the third quarter as inflation is within the central bank’s target and to ensure rupiah stability, a Reuters poll of economists showed.

Inflation, at 2.61 percent in December, declined steeper than expected and has been within BI’s 2023 target range of 2 percent to 4 percent for the last seven months.

That was partly down to the central bank hiking rates between August 2022 and October 2023 by a cumulative 250 basis points.

READ: Indonesia’s Dec inflation eases more than expected

All 30 economists in the Jan. 5-11 Reuters poll expected BI to hold its benchmark seven-day reverse repurchase rate at 6 percent for the third straight meeting on Jan. 17.

Moderating input cost pressure

“Inflation would be no issue for BI for quite a while because we are looking at moderating input cost pressure growth. So, BI will focus more on IDR (Indonesian rupiah) stability compared to inflation development,” said Irman Faiz, economist at Bank Danamon.

“There is a good chance for IDR to appreciate further from the current level but is hindered by the uncertainty of the Fed’s (U.S. Federal Reserve) policy.”

Governor Perry Warjiyo said last month there may be room for easing provided the rupiah strengthens earlier and inflation stays low, but they will not rush. The central bank has a 2024 inflation target of 1.5 percent to 3.5 percent, lower than 2023’s target.

READ: Bank Indonesia rates on hold for rest of year, cut in Q1 2024 – Reuters poll

IDR, which is down 1 percent against the dollar so far this year, is predicted to gain around 3.5 percent in 12 months on market expectations the Fed will ease policy more than BI in 2024, a separate Reuters poll showed last week.

While median forecasts showed the first rate cut in the third quarter, a strong minority of economists, 12 of 26, expected that to come in Q2.

Rates were expected to be at 5.25 percent by end-2024, compared to 5.5 percent in a December poll.

READ: Indonesia’s Q3 GDP growth weakest in 2 years, exports slump further

“We expect BI will lower its policy rate gradually starting mid-2024. Lower inflation and lower rates abroad will allow the central bank to focus on supporting domestic consumer and business spending,” said Jeemin Bang, associate economist at Moody’s Analytics.

Indonesia’s economy will expand 4.7 percent-5.5 percent in 2024, according to BI estimates. The Reuters poll put growth at 5 percent this year.