BENGALURU: Bank Indonesia will leave interest rates unchanged on Wednesday (Nov 20), aiming to protect the rupiah from further depreciation amid concerns US President-elect Donald Trump’s policies could spur dollar strength, a Reuters poll of economists found.
With inflation having stayed within BI’s target range of 1.5-3.5 per cent for over a year, the central bank can focus on the rupiah which despite regular interventions has dropped nearly 5 per cent from a September peak, arguing for fewer rate cuts from the bank whose mandate is to maintain currency stability.
Some economists in the latest survey revised their expectations from a rate cut in an October poll to a hold at the Nov 20 meeting.
Over 70 per cent of respondents, 25 of 34 in the Nov 11-18 Reuters poll, predicted the central bank would keep its benchmark seven-day reverse repurchase rate at 6.00 per cent this week.
Median forecasts showed BI cutting rates by 25 basis points to 5.75 per cent in December, a quarter percentage point less than the previous poll predicted.
“I think it’s likely to be a close call. They’re a little bit concerned about the currency. It has fallen back since the election in the US so they’d like a bit more clarity on what the outlook is,” said Gareth Leather, senior Asia economist at Capital Economics.
“I suspect they’ll keep rates on hold this month.”
Among those who expected BI to pause in November, two-thirds or 16 of 25 economists expected a 25 basis point cut to 5.75 per cent in December.
Median forecasts showed rates falling to 5.00 per cent in the fourth quarter next year compared to the second quarter in the last two polls.
The expected delay partly reflects diminishing bets on rate cuts from the US Federal Reserve as Trump’s policies – broad-based tariffs and tax cuts – are seen as inflationary, keeping the US dollar stronger for longer.
“BI will likely struggle to find more opportunities to keep easing monetary policy in a stronger US dollar environment,” said Brian Tan, senior regional economist at Barclays.
“We believe the risks have tilted towards a delayed resumption of BI rate cuts, as well as a higher terminal rate than would otherwise have been the case.”
