The Unwavering Stance of Bank Indonesia Amidst Economic Uncertainty

By Anant Chandak

Expert Consensus

BENGALURU, March 18 (Reuters) – With inflation levels comfortably within the 1.5% to 3.5% target range and the economy exhibiting signs of a gentle deceleration, a panel of 31 economists in the recent March 8-15 Reuters poll have unanimously forecasted a rate cut in the imminent future at Bank Indonesia.

Predictions vs. Reality

Governor Perry Warjiyo alluded to a static interest rate scenario until the latter half of the year in the previous month. The economists in the survey anticipate Bank Indonesia to retain its benchmark seven-day reverse repurchase rate IDCBRR=ECI at 6.00% during the culminating moments of the March 19-20 meeting.

“We are holding onto the view that Bank Indonesia will uphold the rates until the conclusion of Q2. The scope for a reduction by BI will only materialize post the initial move by the Federal Reserve,” remarked Irman Faiz, an economist at Bank Danamon.

Market Sentiments

The consensus has somewhat shifted on the timeline for the Fed’s first rate cut to June, potentially postponing expectations for BI to follow suit. This potential adjustment is aimed at bolstering the rupiah IDR=, having depreciated approximately 1.3% against the dollar in the current year.

Future Projections

Survey results point towards a median forecast of a 25 basis point reduction in the BI rate in the second quarter. While thirteen analysts anticipate a cut to 5.75%, two outliers predict a more substantial decrease to 5.50%, with fourteen foreseeing no modification.

The medium-term outlook suggests BI progressively tapering the rate to 5.50% in the third quarter, followed by 5.25% in the fourth quarter and a further slide to 5.00% in the early part of next year.

Expert Insights

“The expectation is for Bank Indonesia to communicate an eventual easing towards the latter half of the year, post the initiation of rate cuts by the Federal Reserve. A likely risk would be the Fed deferring rate adjustments to 2025,” noted Nicholas Mapa, a senior economist at ING. He emphasized that despite forecasts of a slight increase in headline inflation, the figures are unlikely to breach the upper limit of the target range anytime soon.

“Bank Indonesia is poised to decrease rates while simultaneously upholding a substantial differential over the Fed,” Mapa added.

(Reporting by Anant Chandak; Polling by Milounee Purohit and Susobhan Sarkar; Editing by Hari Kishan, Jonathan Cable and Kirsten Donovan)

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