Bank Indonesia to cut twice in Q4 as Fed easing supports currency confidence, Reuters poll shows By Reuters

By Rahul Trivedi

BENGALURU (Reuters) – Bank Indonesia (BI) will cut interest rates twice this year after a surprise cut on September 18, a Reuters poll of economists predicted, as a stronger rupiah and subdued inflation allow the central bank to focus on supporting growth. .

Interest rate cut Just hours before the US Federal Reserve cut its policy rate by 50 basis points last week, BI Governor Perry Warjiyo signaled a policy shift from keeping the rupiah stable to a balance between and economic growth.

Warjiyo said the Fed’s clearer direction on monetary policy gave BI the opportunity to cut rates.

With a series of US interest rate cuts expected, further BI cuts are on the cards with less concern about hurting the currency, economists said.

More than 50 percent of economists in a Reuters poll from Sept. 19-24, 11 of 21, expect the central bank to cut its benchmark seven-day reverse repo rate by 25 basis points to 5.75 percent, at its October meeting. The remaining 10 expected no change from 6.00%.

Average forecasts showed another 25 basis point cut in either November or December, taking the key rate to 5.50% by the end of the year.

The Fed is expected to cut by another 25 basis points in both November and December, a Reuters poll found on Friday.

“Now that the Fed has signaled a fairly convenient pivot with a 50 basis point rate cut, BI has been afforded the luxury to be more careful and calibrate its monetary policy to support growth “, said Kunal Kundu, economist at Societe Generale. (OTC:), one of the few analysts who correctly predicted the BI cut last week.

While the central bank kept its 2024 gross domestic product (GDP) growth forecast at 5.1%, the midpoint of the preferred range of 4.7% to 5.5%, it underlined the need for measures to policy to accelerate economic growth.

Median forecasts through the end of 2025 showed rates falling to 5.00%, 25 basis points lower than the previous survey and 100 basis points lower than today.

According to the latest survey, the Fed will cut by 150 basis points over the same period.

The BI is likely to follow a slightly shallower easing cycle compared to the Fed to maintain the attractiveness of its currency, economists said.

“With the US Federal Reserve cutting interest rates faster than Bank Indonesia, foreign investors may increasingly look to Indonesia for favorable returns,” said Jeemin Bang, associate economist at Moody’s (NYSE: ) Analytics.