Bank Indonesia to stand pat on rates this year, cut in early 2024: poll

BANK Indonesia will hold its key interest rate steady at 5.75 per cent for the rest of 2023 after inflation eased to an 11-month low in April, according to a Reuters poll of economists who expected the central bank to cut early next year.

A total of 225 basis points of hikes in the recent tightening cycle helped bring inflation down to 4.33 per cent in April, closer to the target range of 2-4 per cent, while core inflation, closely monitored by BI, has fallen to 2.8 per cent.

The Indonesian rupiah, which has gained over 4.5 per cent this year, has also kept imported inflation at bay, providing the central bank space to exercise patience.

All 31 economists in the May 15-22 Reuters poll expected no change to the 5.75 per cent seven-day reverse repurchase rate at its May 25 meeting, where it has stood since January.

Beyond that, BI was forecast to keep rates unchanged until end-2023 to support the economy amidst softening commodity prices which the resource-rich country relies on for growth.

Only a small minority forecast a rate cut this year.

“We expect a rate pause by BI at its upcoming meeting. With inflation easing and on track to return to the official 2 to 4 per cent target in the coming months, BI’s next move is likely to be a rate cut,” noted Krystal Tan from ANZ.

“However, recent comments from deputy governor Juda Agung signalled that an imminent pivot is not on the cards,” Tan added.

While all economists in the survey forecast rates to have peaked at the current level, they were divided on how much the central bank will cut next year.

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Nearly a third of respondents, six of 20, forecast the central bank to cut by 50 basis points to 5.25 per cent in the first quarter of 2024, while four expected a 25 basis points trim, two expected 75 basis points and three predicted a 100 basis points cut.

The remaining five forecast rates to remain unchanged. REUTERS