BI likely to hold rates Wed but a cut won't surprise

Reuters

BI likely to hold rates Wed but a cut won't surprise

Sep 17, 2024 at 5:52 am GMT

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Sept 17 (Reuters) -Bank Indonesia (BI) is expected to holdits seven-day reverse repurchase rate at 6.25% on Wednesday, hours before a highly anticipatedrate decision from the U.S. Federal Reserve, but there is a growing school of thought that it could cut rates by 25 basis points.

Governor Perry Warjiyo stated at the last policy meeting on Aug 21 that BI was focused onsupporting a further strengthening of the Indonesian rupiah against the U.S. dollar. The IDR has gained a mere0.9% since then, and BI is unlikely to risk undermining it with a rate cut.

Though Indonesia's annual inflation rate of 2.12% in August was comfortably within the central bank's 1.5%-3.5% target range, core inflation edged up to 2.02% from1.95% in July. The economyexpanded a robust 5.05% in the April-June quarterfrom a year earlier, after 5.11% growthin Q1. Neither of these factors support an immediate rate cut.

Yet HSBC and Societe Generale economists cite a stronger currencysince early August, robust capital inflows, burgeoning FX reserves, waning inflation and moderating growth as reasonsfor BI to ease in September.

On balance, BI is unlikely to pre-empt the Fed decision, especially with uncertainty surrounding the size of the likely Fed ratecut. Thirty of 33 economists ina Sept 9-12 Reuters poll expected BI to keep rates steady on Wednesday.

USD/IDR supportis at 15,290, 61.8%of the 2023-2024 rally and the August low. A break opens a decline to 15,010.

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Krishna Kumar is a Reuters market analyst. The views expressed are his own. Editing by Sonali Desai

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