BENGALURU : Bank Indonesia (BI) will leave interest rates unchanged on Wednesday despite inflation falling to its lowest level since 2021, as receding expectations of aggressive U.S. Federal Reserve easing weaken the rupiah, a Reuters poll found.
Inflation eased to a multi-year low of 1.84 per cent in September and has been within BI’s target of 1.5 per cent to 3.5 per cent throughout 2024, suggesting the central bank could further lower rates before year-end.
Despite BI’s intervention to stabilise the rupiah last week, the currency has fallen more than 3 per cent from a September peak following a strong U.S. employment report.
That suggests the Asian central bank is unlikely to implement back-to-back rate cuts having surprised markets with its first easing in more than three years in September.
Marking a shift in expectations, over 75 per cent of economists, 24 of 31, in an Oct. 7-14 Reuters poll predicted the central bank would keep its benchmark seven-day reverse repurchase rate at 6.00 per cent on Oct. 16.
In the previous poll, taken after the central bank’s cut last month, more than 50 per cent of respondents anticipated another reduction this week.
BI was also forecast to keep the overnight deposit facility and lending facility rates unchanged at 5.25 per cent and 6.75 per cent, respectively.
“Recent market developments have shifted the odds in favour of BI keeping its policy rate unchanged … Stronger-than-anticipated U.S. labour market data triggered a market repricing of U.S. rate expectations and renewed pressure on the rupiah,” ANZ said in a note to clients, adding that longer-term they continued to see 5.00-5.25 per cent as a reasonable range for the terminal policy rate.
“BI has an easing bias, and further rate cuts are just a matter of time. Should global risk sentiment rebound in the days leading up to BI’s October meeting, a 25 bp rate cut is certainly possible.”
Among those who predicted BI will hold rates this week, a majority, 12 of 20, were expecting a half-point cut by year-end.
Median projections showed rates were expected to fall to 5.00 per cent by end-June – consistent with the previous poll – while the Fed was seen cutting rates by 150 basis points by the end of 2025.
“We anticipate that BI will only proceed with a rate cut when signals from the Fed on a rate cut … become more definitive,” said Josua Pardede, chief economist at Bank Permata.
Inflation was expected to average 2.5 per cent this year and 2.6 per cent next year while economic growth was seen steady at 5.0 per cent in 2024 and 5.1 per cent in both 2025 and 2026. The growth forecasts were broadly unchanged from a July survey but the inflation outlook was lowered.
(Other stories from the October Reuters global economic poll)
