Bank Indonesia likely done with hikes, first cut in Q3 2024: poll
BANK Indonesia (BI) will likely maintain its key policy rate for a second month on Thursday (Dec 21) as inflation is within its target range and the rupiah has stabilised, according to a Reuters poll of economists.
Inflation has stayed within the central bank’s 2 to 4 per cent target range in 2023 for the sixth consecutive month, despite an uptick in November.
The rupiah has gained nearly 2 per cent since a surprise rate hike in October, easing pressure on imported prices.
BI governor Perry Warjiyo recently said the policy rate would be on hold into next year, as it was restrictive enough to keep inflation within the bank’s 1.5 to 3.5 per cent target for 2024.
He also said the rupiah would become more stable as the US Federal Reserve was widely expected to start policy easing next year.
The poll was conducted from Dec 11 to 18. All 28 economists expected BI to hold its benchmark seven-day reverse repurchase rate at 6 per cent at the conclusion of its Dec 20 to 21 meeting. They also forecast that the first rate cut will be in the third quarter of 2024.
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“Bank Indonesia will likely remain on hold… given manageable inflation and currency movement. Although we expect inflation to remain comfortably within the bank’s new inflation target next year, risks are tilted to the upside,” said economist Makoto Tsuchiya at Oxford Economics.
“We expect the rupiah strength to partly reverse towards the end of the year, (but) we think another hike is unlikely. The next move will likely be a cut. BI will likely shift its focus to a growth picture gradually towards the middle of the year.”
Median forecasts showed the key interest rate unchanged until at least the end of the second quarter of 2024, followed by a 50-basis-point cut in the third quarter, to end the year at 5.5 per cent.
For the second quarter of next year, 10 of 22 respondents saw rates at 5.8 per cent or lower. Only eight had that view in a November poll.
Nearly all economists said the next move from BI would be a cut. Among those who provided third-quarter forecasts, 15 of 19, or over 75 per cent, expected the rate to be 5.8 per cent or lower, while four saw it at 6 per cent.
“The dovish tone emerging from the recent Fed meeting should be good news for BI,” said economist Kunal Kundu at Societe Generale.
“We expect the central bank to remain on hold for the next few months rather than opt to reverse the unexpected October hike and we do not rule out the bank opting for a rate cut earlier than we have been expecting.”
He added: “What above-target inflation might mean is a shallow easing trajectory.
“In fact, with growth yet to be on a strong footing and a national election looming next year, there is every case for monetary policy to be supportive of the economy. Hence, the next policy rate change will be a cut.”
Warjiyo put Indonesia’s GDP growth outlook within a range of 4.7 to 5.5 per cent for 2024 and 4.8 to 5.6 per cent for 2025.
However, a headwind was still expected from weakening global economic growth.
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