20-6-2023 (JAKARTA) Bank Indonesia (BI) is projected to keep its key interest rate steady at 5.75 percent for the fifth consecutive meeting on Thursday and throughout the remainder of the year, according to a Reuters poll of economists. This decision comes as inflation in May showed signs of easing and was anticipated to decline further. The easing inflationary pressure allows BI to adopt a wait-and-see approach, even as policymakers in the United States and Europe are expected to continue tightening their monetary policies.
All 34 economists surveyed from June 14 to 19 agreed that the central bank would hold its benchmark seven-day reverse repurchase rate at the conclusion of its June 21-22 meeting. Among the respondents, 15 out of 23 believed that the key policy rate would remain unchanged for the rest of 2023, while eight economists expected a rate cut later this year.
“Bank Indonesia was one of the first central banks in the region to pause its tightening cycle earlier this year. We believe BI will carry out an extended pause to shore up support for the Indonesian rupiah,” stated Nicholas Mapa, senior economist at ING. Mapa further added that BI would only consider reducing policy rates if global central banks decide to ease their monetary policies.
Similar to its neighboring central banks, BI is expected to maintain the current interest rates for the remainder of the year, as rate cuts could lead to a weaker currency and higher imported inflation. The Indonesian rupiah has performed well against the dollar this year, appreciating over 4 percent.
Khoon Goh, head of Asia research at ANZ, commented, “While the central bank’s next rate move is likely to be a cut, the timing of an easing pivot will depend on external conditions, with clear signs that the U.S. Fed is at least on a prolonged pause a pre-requisite, in our view.” Goh also mentioned that robust consumer sentiment and ample liquidity conditions in the banking system suggest no urgency for a swift policy shift.
Median forecasts from the survey indicate a 25-basis-point rate cut to 5.50 percent in the first quarter of 2024, slightly downgrading the previous expectation of a 50-basis-point cut in a May poll.
