VIEW: Goldman Sachs Still Expects First Rate Cut In Q4

Bank Indonesia (BI) hiked rates 25bp to 6.25% at its April 24 meeting, which was not completely unexpected but consensus forecast no change. It hiked as a ‘pre-emptive and forward-looking’ move to ensure FX stability and keep inflation in the target band. Goldman Sachs believed BI would hike and so hasn’t changed its view following the move and still expects the first rate cut to be in Q4 2024, “assuming FX pressures ease as the Fed starts its monetary easing cycle”.

• “In the Q&A session, the Governor elaborated that the decision today was mainly driven by external developments, specifically higher uncertainty in the Federal Reserve's monetary policy easing path and heightened geopolitical tensions in the Middle East.”
• “The central bank now expects the Fed Funds rate to be 'higher-for-longer' -- revising its baseline projection (75% probability) for the Fed Funds rate to just one 25bp cut in Q4 2024 (likely in December, in BI's view), vs. an earlier expectation of 75bp of cumulative rate cuts by end-2024 at the time of the February meeting. The governor noted that risks are skewed towards no cuts by the Fed in 2024.”
• “In terms of the currency, BI expects USDIDR to be stable at around 16,200 in Q2, before appreciating to 16,000 and 15,800 in Q3 and Q4, respectively.”