Bank Indonesia to hold key rate at 5.75% for rest of year: poll
BANK Indonesia (BI) will keep its key interest rate unchanged at 5.75 per cent for a fifth consecutive meeting on Thursday (Jun 22) and for the rest of the year, a Reuters poll of economists found.
After peaking at around 6 per cent in September, inflation gradually eased to reach the upper end of BI’s 2 per cent to 4 per cent target range last month. The latest dip suggests that BI can wait and watch, even as policymakers in the US and Europe are likely to continue tightening policy.
All 34 economists in the Jun 14-19 Reuters poll expected the central bank to hold its benchmark seven-day reverse repurchase rate at the conclusion of its Jun 21-22 meeting.
Among 23 of the respondents, 15 – nearly two-thirds – said the key policy rate would remain at that level for the rest of 2023. The other eight economists said they expect 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.
He added that BI would “only consider cutting policy rates should global central banks opt to ease monetary policy”.
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Similar to its regional peers, BI is 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 per cent against the US 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 US Federal Reserve is at least on a prolonged pause a prerequisite, in our view,” said Khoon Goh, head of Asia research at ANZ.
“Our base call is for BI’s first cut to materialise 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 5.50 per cent in the first quarter of 2024, a slight downgrade from the 50-basis-point cut expected in a May poll.
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