Bank Indonesia to keep rates steady on Aug. 21, cut in Q4
reuters://realtime/verb=Open/url=cpurl%3A%2F%2Fapps.cp.%2FApps%2Fcb-polls%3FRIC%3DIDCBRR%253DECI poll
All 30 economists expect rates to be on hold at 6.25% on August 21
By Veronica Dudei Maia Khongwir
BENGALURU, Aug 16 (Reuters) -Bank Indonesia (BI) will keep interest rates on hold on Wednesday to support the rupiah but cut borrowing costs next quarter following the likely start of policy easing by the U.S. Federal Reserve in September, a Reuters poll found.
Annual inflation eased to 2.13% in July, the lowest since February 2022 and within the lower half of the central bank's target range of 1.5%-3.5%. But BI is in no rush to cut rates, as it focuses on supporting the rupiah IDR=, which is down around 2% against the dollar this year.
All 30 economists in the Aug. 7-15 poll expected the central bank to keep its benchmark seven-day reverse repurchase rate, known as the Bank Indonesia (BI) Rate, unchanged at 6.25% at the conclusion of its two-day meeting on Aug. 21.
It was also forecast to keep the overnight deposit facility and lending facility rates unchanged at 5.50% and 7.00%, respectively.
Median forecasts showed interest rates will remain unchanged through the third quarter, followed by a 25 basis point cut to 6.00% in the final quarter of the year. This outlook was broadly unchanged from a July survey.
"The rupiah has remained weak despite inflation easing, thus BI has not considered cutting rates sooner. A weak rupiah will weigh on import prices, which is particularly important as Indonesia relies on imported petroleum and rice," wrote Wen Chong Cheah, analyst at the Economist Intelligence Unit.
"A premature cut could further weaken the rupiah and cause inflation through higher imported commodity prices, which is something BI wants to avoid."
With the currency under pressure, BI is unlikely to move before the first rate cut from the Federal Reserve, expected in September.
Among those who provided forecasts until end-2024, a majority - 19 of 29 - expected interest rates to be 6.00% or lower, while 10 predicted no change.
Going into next year, BI was expected to cut rates by an additional 75 basis points, bringing its interest rate to 5.25% by end-2025.
"We expect BI to ease rates from the first quarter of 2025. As the U.S. Fed begins its easing cycle, widening interest rate differentials between the U.S. and Indonesia will allow the rupiah to strengthen in line with BI's objectives," said Jeemin Bang, associate economist at Moody's Analytics.
"Even so, keeping interest rates higher for longer may weigh on domestic demand. The central bank will constantly weigh the impact of monetary policy settings on the rupiah and economic growth."
Reporting by Veronica Dudei Maia Khongwir; Polling by Devayani Sathyan and Susobhan Sarkar; Editing by Stephen Coates
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