VIEW: Goldman Sachs Continues To See Rate Cut In Q4

Bank Indonesia (BI) kept its policy rate at 6.25% at its May 22 meeting after the surprise April hike to defend the currency but it retained its focus on FX stability as expected. Goldman Sachs continues to expect BI to start its easing cycle in Q4 this year assuming the rupiah strengthens once the Fed begins to cut rates.

• “In the Q&A session, the Governor reiterated that the hike in April's meeting was a pre-emptive move to anticipate the scenario of no cut from the Federal Reserve in the US. In its latest assessment, the central bank sees the current policy rate level to be appropriate as risks to a no cut scenario become lower given the latest data from the US, in their view. BI's baseline scenario, remains that the Fed will cut its policy rate only 25bp this year, towards the year-end.”
• “The statement today noted that the uncertainties in global financial market remain elevated.”
• “On the domestic front, the central bank continues to forecast real GDP growth within a 4.7% - 5.5% range in 2024 (GS: 5.0%) partly driven by higher investment and household spending post election and CPI inflation between central bank target band of 1.5%-3.5% (GSe: 2.9%). The central bank expects the current account to be within a range of -0.9% to -0.1% of GDP in 2024 (GSe: -0.8%). The statement continues to note that USDIDR is likely to strengthen given the effectiveness of BI's monetary tools.”