INDONESIA: VIEW: ANZ Expects October Cut With Risk Of September

Bank Indonesia (BI) kept rates unchanged at 6.25% as was widely expected. It remains cautious given US recession risks and geopolitical uncertainties and there was little change to its statement. For now its focus is on further rupiah strengthening before considering rate cuts. It will continue to “optimise” the SRBI, SVBI and SUVBI instruments although the former has been reduced to weekly issuance and flows are expected to go into bonds over SRBI going forward. ANZ expects an October 25bp rate cut with the risk that BI eases earlier with two cuts by end-2024.

• “BI stated that its focus in Q3 2024 remains on strengthening the IDR and reiterated the scope for a policy rate cut in Q4 2024.”
• ANZ observed that “there were no changes in BI’s 2024 domestic macro forecasts: growth at 4.7% to 5.5%, current account at -0.1% to -0.9% of GDP, and inflation within 1.5% to 3.5% target range. BI expects loan growth to come in at the upper end of its 10% to 12% target.”
• “In response to a question on the external conditions required to pave the way for a BI rate cut, BI’s governor Perry Warjiyo shared the central bank’s latest base case … Fed fund rate: base case (with 75% probability) for 50bp rate cuts in 2024 and 75bp in 2025, with risk scenario (25% probability) for rate cuts of 50bp each in 2024 and 2025. BI had previously anticipated the Fed to deliver its first rate cut in November.”