Indonesia’s c. bank likely to hold rates on July 17 – poll

Bank Indonesia (BI), Indonesia’s central bank, is likely to keep its key interest rate at 6.25 per cent in the upcoming policy meeting on July 17th, as per a Reuters poll. The poll indicates a possible rate cut in the next quarter, a shift from earlier forecasts.

While inflation has remained within BI’s target range of 1.5 per cent to 3.5 per cent since July 2023, the central bank faces a balancing act.

A weakening rupiah, down roughly 4.5 per cent this year, has pressured BI to keep rates higher for longer. Maintaining currency stability is a primary mandate for the bank.

All 35 economists surveyed by Reuters between July 8th and 12th predict BI will hold its benchmark seven-day reverse repurchase rate at 6.25 per cent.

BI Governor Perry Warjiyo recently indicated the possibility of a rate cut in the next quarter, anticipating increased rupiah stability. However, the central bank currently prioritises maintaining currency stability.

The median forecast from the poll suggests no change in interest rates for the current quarter but predicts a 25-basis point reduction to 6.00 per cent in the fourth quarter. This is a shift from a June survey which anticipated the initial cut in early 2025.

Opinions on the year-end policy rate diverge among economists. While 18 predict rates to be 6.00 per cent or lower, 13 expect them to remain at 6.25 per cent. One economist even forecasts a potential 25 basis point hike to 6.50 per cent.

The poll also forecasts inflation to average 2.9 per cent and 3.0 per cent in 2024 and 2025, respectively. Additionally, economic growth is projected to be around 5.0 per cent in both years.

Attribution: Reuters