Interest rates left unchanged, first rate cut in June
Bank Indonesia left its policy rate on hold at 6.00% at its scheduled meeting today, and hinted at cuts later in the year. With inflation under control and the currency holding up well against the US dollar, we expect the central bank to start cutting rates in June.
Today’s decision was correctly predicted by all 31 analysts polled by Reuters, including ourselves. The central bank’s last move was a surprise 25bp hike in October last year. Rates have been hiked by a cumulative 250bp this tightening cycle.
In the press conference Governor Warjiyo stated once again that the focus for policy in 2024 would be to keep the rupiah stable and inflation within target. The headline inflation rate has remained comfortably within BI’s target band of 1.5-3.5% since the second half of last year, with headline and core inflation coming in at 2.8% and 1.7% y/y respectively in February. Weak economic growth and the upcoming harvest season, which should help to bring down food prices, will keep inflation under control.
On the currency front, the Governor today said that the outlook for the rupiah was stable. Given our view that the US Fed will cut rates at its June meeting, the currency should appreciate over the coming months. This points to BI cutting rates in June (a little later than our previous forecast of a May cut).
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