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Goldman Sachs Looking For BI Cuts Late In Q2 24

INDONESIA CENTRAL BANK

The US Bank looks for BI to cut towards the end of Q2 2024. Note the central bank kept rates on hold as widely expected yesterday.

  • "In the Q&A session, BI Governor shared the central bank's expectation on Fed's and domestic monetary policy stance. BI expects the Fed to only cut in H2 next year, 50bp in total. Coupled with a still strong USD in H1, the monetary board sees room for monetary easing only in H2 2024 -- although BI will continue to monitor the development of exchange rate and domestic prices going forward. In our view, the BI is keeping the option to ease monetary policy earlier in H1.

    On the inflation front, the monetary board observed a shift in crops planting and harvesting due to El Nino, especially paddy and chili which partially contributed to the higher inflation in recent months. However, the government's move to increase rice import and more chili harvest in the coming months will help normalize the food inflation in 2024. Asked about the election, the monetary board shared that they estimate the potential impact from election spending on consumption to be ~0.6% -- assuming 2 rounds of voting.

    Going forward, we continue to expect Bank Indonesia to keep the policy rate on hold until Q1 2024. We expect the BI to deliver its first rate cut in late Q2 assuming USD pressure eases and CPI inflation remains well behaved in 2024. The schedule for BI meeting in 2024 is not yet released but the next BI meeting will likely be in January 2024."
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