BENGALURU : Bank Indonesia will hold its interest rate steady on Wednesday, according to two-thirds of economists in a Reuters poll, although they remain divided on where borrowing costs might end the year.
Indonesia’s central bank will announce its decision just hours before the U.S. Federal Reserve is due to meet, with BI likely to prioritise the stability of the rupiah, which has risen nearly 4 per cent since early April.
The Fed is expected to maintain rates until September amid concerns that trade tariffs imposed by U.S. President Donald Trump could fuel inflation in the United States.
Of the 31 economists in a June 9-16 Reuters poll, 21 said they expected Bank Indonesia to keep its benchmark seven-day reverse repurchase rate unchanged at 5.50 per cent at the conclusion of its two-day meeting.
The remaining 10 expected a 25 bps cut to 5.25 per cent, compared to just three economists in May’s poll.
“BI has limited space to cut, particularly if it wants to maintain some interest rate differential with the U.S., said Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank.
The bank cut interest rates by 25 bps to support the slowing economy last month.
“Back-to-back rate cuts risk signalling a sense of urgency about the deterioration in the growth outlook, which BI will seek to avoid as it could weigh on broader sentiment and the currency,” Venkateswaran added.
Some economists warned tensions in the Middle East were fuelling global risk aversion, increasing the likelihood of capital outflows from emerging markets such as Indonesia and putting pressure on the rupiah.
Half of respondents who provided a view beyond the upcoming meeting, 14 of 28, expected BI to cut rates to 5.25 per cent by the end of next quarter. Eight forecast rates at 5.00 per cent or below while six saw no change.
The median forecast pointed to rates at 5.00 per cent by year-end, but with no majority view.
“We still see room for BI to implement further policy rate cuts supported by weakening economic growth, subdued inflation, the potential for a Fed rate cut and Indonesia’s relatively sound external sector,” said Josua Pardede, chief economist at Permata Bank.
(Other stories from the June Reuters global economic poll)
