Inflation At Target, Easing Talk Increases

Bank Indonesia (BI) meets on June 22 and is unanimously expected to leave rates at 5.75% where they have been since January (see MNI BI Preview - June 2023). We look at what may drive a rate cut and IDR developments in MNI Indonesia Macro Outlook. There is unlikely to be an easing signal in the June meeting statement while the economy is still “solid” and it is unclear how much the Fed still has to do.

• Indonesia was one of the last central banks in the region to hike, but it tightened 225bp quickly and rates stand above most others. With both core and headline inflation now in the target band, BI is likely on hold for the foreseeable future and discussion of when an easing cycle will begin is only likely to increase. No other Asian central banks, ex China, have begun to cut rates.
• A rate cut is likely to be highly dependent on IDR moves and what the Fed does. A slowdown in growth and a continued moderation in inflation would also likely be necessary.

Source: MNI - Market News/Refinitiv