Indonesia rate cut likely by end of the year

With the Fed possibly poised to hike interest rates later in the day, Bank Indonesia’s (BI) decision to keep its key policy rate on hold at 7.5% was no great surprise. Going forward, with inflation set to drop back sharply later in the year, we expect to see some policy loosening before the end of 2015. However, much will depend on what happens to the rupiah. A sudden sharp fall in the currency would make it difficult for BI to loosen policy.