By Veronica Dudei Maia Khongwir
BENGALURU (Reuters) – Bank Indonesia will keep its key interest rate steady at 5.75% for the seventh consecutive meeting on Thursday and for the rest of the year as inflation moves closer to the mid-point of the central bank’s target range, a Reuters poll found.
With Indonesia’s inflation rate easing to a 16-month low of 3.08% in July, well within the 2%-4% target range, the central bank’s focus is now on keeping the rupiah currency stable, say analysts.
All but one of 34 economists in the Aug. 14-21 Reuters poll expected Indonesia’s central bank to keep its seven-day reverse repurchase rate at 5.75% on Thursday. One expected a 25 basis-point hike.
“Inflation has evolved along our projected path, but the central bank’s focus has shifted to rupiah stability to contain imported inflation and mitigate contagion risks from global uncertainties,” said Radhika Rao, senior economist at DBS Bank.
Rao noted that slowing exports, a decline in FX reserves and a stronger dollar have hit the currency in recent months after making gains in the first half of the year.
“The authorities have maintained that they prefer to address FX volatility through intervention efforts rather than further tightening moves,” she said.
Last week, Bank Indonesia (BI) intervened to lower volatility in the rupiah after it fell to its weakest level since March, driven by fears that higher U.S. Treasury yields might trigger capital outflows like in 2013 when the rupiah lost more than a quarter of its value.
Among the economists who had forecasts for the coming period nearly 60%, 16 of 28, predicted BI would keep rates at 5.75% through to the end of 2023. Eleven predicted at least one quarter-percentage point cut by then, and one expected rates to be at 6.00%.
Like many of its Asian peers, BI was forecast to start cutting rates from the first quarter of 2024. However, economists were divided over the amount rates would fall.
Nearly 40% of respondents, nine of 23, forecast a 25 basis-point rate cut to 5.50% in the first quarter. Six expected rates to come down to 5.25%, one predicted rates to reach 5.00%, and three to 4.75%.
Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank said “as the weakness in China continues, it will be a drag on Indonesia’s growth” adding that BI would “try and support growth as we go towards the end of this year.”
Median forecasts from a smaller sample showed BI cutting its benchmark rate to 5.25% and 5.00% in Q2 and Q3 of next year and then lower it to 4.75% in the final quarter.
(Reporting by Veronica Dudei Maia Khongwir; Polling by Anant Chandak and Susobhan Sarkar; Editing by Hari Kishan, Ross Finley and Hugh Lawson)
