(Bloomberg) -- Bank Indonesia will likely resume its easing cycle as early as next month to deliver a growth boost to Southeast Asia’s largest economy as a new government takes the reins, according to economists.
The analysts expect the central bank to lower its benchmark interest rate by a quarter-point at the next rate decision on Nov. 20, while some see a similar cut at a December meeting. All are in general agreement that Bank Indonesia’s decision to hold its key rate at 6% on Wednesday was a brief pause as the rupiah recovers.
Governor Perry Warjiyo signaled the same after the rate decision, saying policymakers see scope for more rate cuts though their size and timing will depend on the outlook for the rupiah, inflation and economic growth. Indonesia will announce third-quarter gross domestic product numbers on Nov. 5.
Lower borrowing costs should spur activity at a time when Indonesia is grappling with slowing loan growth, manufacturing activity and consumer confidence. It will also help President-elect Prabowo Subianto — who is set to be inaugurated this weekend — in his quest for 8% growth, almost double the average 4.2% notched in the last 10 years.
“BI has many good reasons to resume easing in the next meeting, right after the US elections and the next Fed meeting,” said HSBC Holdings Plc’s Pranjul Bhandari and Aayushi Chaudhary in note to clients, citing Indonesia’s sluggish growth, low inflation and improved external buffers against further currency volatility. They expect a series of cuts from November through the first quarter to take the key rate to 5.25%.
Here’s what economists are saying:
Radhika Rao, DBS Bank Ltd.
- Falling inflation has pushed up real interest rates to at least 150-200 basis points above the pre-pandemic levels, leaving room to ease further
- We expect another 25 basis points cut this quarter, subject to a retreat in the US dollar and US bond yields, followed by more next year to take the benchmark rate to 5% by mid-2025
Kunal Kundu, Societe Generale SA
- BI will likely ease again in November, but whether there will be a December cut will depend on the communication from the Fed following their policy decision early next month
Brian Tan, Barclays Plc
- We maintain our base case for 25 basis points cuts at the November and December meetings, followed by two more moves in Q1 and Q2 2025
- There remains significant uncertainty over the timing and extent of the next BI rate cuts, which will likely be dependent on the rupiah for now
Rina Jio and Jonathan Sequeira, Goldman Sachs Group Inc.
- We expect BI to continue easing, cutting policy rates another 75 basis points by early 2025
- Risks to our forecast are skewed towards later cuts, if the dollar strengthens further and the rupiah remains under pressure through year-end
Satria Sambijantoro and Purbiantoro Lintang at PT Bahana Sekuritas
- We see BI cutting rates in November or December only if the rupiah strengthens to 15,000-15,200 against the dollar and 10-year US Treasury yields fall to 3.6%-3.7%
- What we learned from BI cautious policy statements on Wednesday is if one wants to predict the BI-Rate, the rupiah and US Treasury yields matter more than everything else
- We also believe BI is inclined to preserve financial-market stability ahead of a new government transition
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