Rate debate heats up in Indonesia

The war of words between Bank Indonesia (BI) and the government is heating up after the country’s vice president, Jusuf Kalla, earlier this week renewed its call for the central bank to cut interest rates to support growth. BI sets monetary policy separate of the government, and we doubt Mr Kalla’s latest interventions will make much difference to the central bank. Indeed, in response to Mr Kalla’s comments, central bank governor, Agus Martowardojo, appeared to rule out the prospect of a rate cut this year by stating the need for Indonesia to remain vigilant against external risks that could destabilise the national economy. With BI’s December meeting coming just a day after the Fed’s own meeting, where it is expected to hike interest rates, we think the first rate cut in Indonesia will come early next year.