By Rahul Trivedi
BENGALURU (Reuters) -Bank Indonesia is expected to pause its easing cycle on Wednesday to assess the impact of earlier rate cuts as inflation has ticked up recently and economic momentum remained solid last quarter, a Reuters poll of economists showed.
After BI lowered its key policy rate by 25 basis points last month, data showed the economy grew 5.12% in April–June while inflation rose to 2.37% in July, moving closer to the midpoint of BI’s 1.5%-3.5% target range.
These trends, coupled with sluggish loan growth despite 100 basis points of total cuts since September 2024, could prompt BI to hold off on another rate cut until credit demand clearly rebounds.
More than 80% of economists, 24 of 29, expected BI to leave its benchmark seven-day reverse repurchase rate unchanged at 5.25% at the conclusion of its two-day meeting on August 20, an August 11-18 Reuters poll found. The remaining five forecast a 25 basis point cut.
BI’s overnight deposit and lending facility rates are also expected to remain steady at 4.50% and 6.00%, respectively.
“It wasn’t just the Q2 GDP growth, which was higher than expected, but also headline inflation picked up in July quite significantly. So that’s another reason for BI to pause and assess if a food inflation-driven pickup in headline will lead to some pass-through into the core basket,” said Euben Paracuelles, chief ASEAN economist at Nomura.
“The policy transmission of the 100 basis points of cuts they’ve had so far seems to be relatively slow. A more prudent approach would be to try to fix that first because cutting the policy rate further may not be effective.”
Looking ahead, 14 of 24 economists expected BI to keep rates at 5.25% through this quarter, nine foresaw a 25 basis point reduction, and one projected a 50 basis point cut.
By year-end, almost two thirds of economists, 15 of 23, expected rates at 5.00%; six forecast 4.75%; while one each predicted 4.50% and no change from 5.25%.
Expectations of U.S. Federal Reserve rate cuts later this year could also give BI more room to ease policy.
“We have one more cut this year but we have flagged risks BI could do more. We have the Fed now cutting … two more times this year instead of just one. That gives a little more room to think about further easing if needed,” Euben added.
A separate Reuters poll in July showed Indonesia’s growth is projected to slow to an average 4.7% in the second half from 5.0% in the first.
Lavanya Venkateswaran, economist at OCBC, said growth momentum would reduce in the second half and a neutral fiscal stance would leave monetary policy doing the heavy lifting to support the economy.
(Other stories from the August Reuters global economic poll)
(Reporting by Rahul Trivedi. Polling by Pranoy Krishna and Susobhan Sarkar. Editing by Mark Potter)
