By Rahul Trivedi
A recent Multibagger poll of economists predicts that Bank Indonesia (BI) will cut interest rates twice more this year, following a surprise reduction on Sept. 18. The central bank's focus on supporting growth is driven by a stronger rupiah and subdued inflation.
BI Governor Perry Warjiyo's decision to cut rates just hours before the U.S. Federal Reserve slashed its policy rate by 50 basis points signals a shift towards balancing the rupiah's stability with economic growth.
With the Fed expected to continue cutting rates, BI may further reduce rates without worrying about currency depreciation, according to economists.
The poll forecasts a 25 basis points cut in the benchmark rate to 5.75% at BI's October meeting, with another cut expected either in November or December to bring the rate to 5.50% by year-end.
Economists suggest that BI's slightly shallower easing cycle compared to the Fed aims to maintain the attractiveness of the rupiah for foreign investors seeking favorable returns.
Analysis:
Bank Indonesia's decision to cut interest rates is a positive sign for the economy, as it can stimulate growth and potentially attract foreign investment. Lower rates could lead to increased borrowing and spending, which can boost economic activity. However, it's essential to monitor inflation and currency stability to ensure a balanced approach to monetary policy. Overall, these rate cuts could have a significant impact on individuals, businesses, and the overall economic outlook of Indonesia.