Bank Indonesia says too early to discuss rate cuts

IT’S too early for Indonesia’s central bank to consider cutting interest rates, a member of the bank’s board of governors said on Monday (May 15), even as the country’s inflation eases but concerns over slowing growth mount as exports slow.

Bank Indonesia (BI) has kept policy rates unchanged since its last rate hike in January and repeatedly said its rate hikes, totalling 225 basis points since last year, were sufficient to guide inflation back to within target in the second half of 2023.

“It is too early to say when we will cut. Yes, the core inflation is already even lower than 3 per cent. But of course there are some risks still,” Juda Agung, BI’s deputy governor and a member of the rate-setting board, told Reuters on the sidelines of a conference co-hosted by the Philippines’ central bank and the International Monetary Fund.

With markets expecting the US Federal Reserve to pause its tightening cycle and Indonesia’s inflation cooling to just above BI’s 2-4 per cent target range, some analysts expected the central bank to start considering easing monetary policy in the coming months.

Indonesia’s headline inflation, which peaked at 5.95 per cent in September 2022 amid rising global commodity prices, eased to 4.33 per cent last month. Core inflation has stayed below 3 per cent since March.

April trade data showed that exports from the resource-rich country slumped, but trade surplus remained high at US$3.9 billion, strengthening the case for BI to cut rates, some economists said.

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Noting the return of capital inflows and the rupiah’s appreciation as favourable factors for the economy, Agung said BI remained wary of the impact of the El Nino weather patterns on inflation, which he said was among risks that BI was monitoring before deciding to cut rates.

“Inflation is...declining faster than expected. We are happy. But of course we remain vigilant,” he said. REUTERS