Bank Indonesia to cut twice in Q4 as Fed easing shores up FX confidence, Reuters poll shows
BENGALURU : Bank Indonesia (BI) will cut interest rates twice more this year following a surprise reduction on Sept. 18, a Reuters poll of economists predicted, as a stronger rupiah and subdued inflation allows the central bank to focus on supporting growth.
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In cutting rates just hours before the U.S. Federal Reserve slashed its policy rate by 50 basis points last week, BI Governor Perry Warjiyo signaled a policy shift from keeping the rupiah currency stable to a balance between that and economic growth.
Warjiyo said the Fed's clearer direction on monetary policy provided BI with an opportunity to cut rates.
With a series of U.S. rate cuts expected, further BI reductions are on the cards with less concern about hurting the currency, economists said.
Over 50 per cent of economists in a Sept. 19-24 Reuters poll, 11 of 21, forecast the central bank to cut its benchmark seven-day reverse repurchase rate by 25 basis points to 5.75 per cent at its October meeting. The remaining 10 expected no change from 6.00 per cent.
Median forecasts showed another 25-basis-point cut in either November or December, bringing the key rate to 5.50 per cent by year-end.
The Fed was expected to cut by a further 25 basis points in both November and December, a snap Reuters poll found on Friday.
"Now that the Fed has signaled a rather dovish pivot with a 50bp rate cut, BI has been afforded the luxury of allowing itself to be more inward-looking and calibrating its monetary policy to support growth," said Kunal Kundu, economist at Societe Generale, one of the few analysts who correctly predicted the BI cut last week.
