Indonesia: Central Bank stands pat in August
At its meeting on 20–21 August, Bank Indonesia (BI) decided to maintain the BI-Rate at an eight-year high of 6.25% and also kept the Deposit Facility (DF) rate plus the Lending Facility (LF) rate unchanged at 5.50% and 7.00%, respectively. The decision was in line with market expectations.
The key domestic factors influencing the BI’s decision on interest rates included the recent stabilization of the rupiah, plus the Bank’s aim to maintain inflation within the 1.5–3.5% target corridor for 2024 and 2025. Additionally, strong credit growth and foreign fund inflows also supported the decision to hold. Lastly, BI stood pat in anticipation of the U.S. Fed’s pivot in the coming weeks, due to its potential effect on exchange rates.
The text does not provide specific forward guidance on what the Central Bank will do with interest rates in the future, indicating that there is no explicit statement regarding future interest rate movements.
Commenting on the meeting, Enrico Tanuwidjaja, economist at United Overseas Bank, stated:
“Though we keep our view for BI to start normalising its benchmark interest rate level to 5.75% in 1Q25, there is now risks that BI may cut in the immediate month after the possible start of Fed rate’s easing next month, on 19 Sep.”
Analysts at Nomura held a more dovish view:
“We maintain our forecast that BI will cut its policy rate by 25bp to 6.0% at its next board of governors meeting on 18 September, marking the start of its cutting cycle. […] Importantly, we think BI is starting to focus on growth, with the external backdrop turning more favourable for FX stability. In particular, the [BI’s] comment that domestic demand needs to be supported to maintain confidence is consistent with our view that the outlook for household spending is dimming, and that this will become increasingly the focus of BI in its policy decisions in the near-term. A shift to a more pro-growth stance paves the way for monetary policy to be recalibrated to become less restrictive.”