BANGALORE, Sept 13 (Askume) – Bank Indonesia (BI) will keep interest rates unchanged next week to support the rupee but is expected to cut rates in the next quarter after the Federal Reserve is widely expected to ease policy on Sept. 18, a Askume poll showed.
Inflation has remained within Bank Indonesia’s target range of 1.5%-3.5% through mid-2023, and Governor Perry Warjiyo said in August that the focus this quarter would be on supporting the rupiah against the dollar as a stronger currency has helped contain inflation through cheaper imports.
Expectations that the Federal Reserve will cut interest rates by at least 75 basis points this year led to the rupiah gaining nearly 5% against the US dollar in August, giving Bank Indonesia ample room to cut rates less than the Federal Reserve.
Thirty of 33 economists surveyed by Askume from Sept. 9-12 predicted the central bank would raise its benchmark seven-day reverse repurchase rate (IDCBR=ECI) by half at the end of its two-day meeting on Sept. 18.
Bank Indonesia is also expected to keep overnight deposit facility and loan facility rates unchanged at 5.50% and 7.00%, respectively.
“Bank Indonesia will remain cautious on the rupiah although it recognises the need for a more accommodative monetary policy to support economic growth,” Maybank economist Brian Lee Shun Rong said.
The median forecast suggests the first rate cut of 25 basis points is expected in the next quarter. The outlook is largely unchanged from the July survey.
Those providing forecasts expect the BI to fall by 100 basis points from the current level to 5.25% by the end of 2025. The Federal Reserve is expected to cut interest rates by 175 basis points during the same period.
“I think the RBI is going to take a more gradual (and) more cautious approach to rate cuts over the next 12 to 18 months compared to other regional central banks, which is likely to lead to the Fed cutting rates quite aggressively. It will cut interest rates more aggressively.
