VIEW: Goldmans Expects 3 Rate Cuts Starting In June

Goldman Sachs hasn’t changed its forecasts for Indonesia following yesterday’s elections, as the result came in close to expectations. It expects 5% GDP growth this year in line with 2023. Inflation should stay within BI’s target band at 2.9% in 2024 and be “mainly driven by higher food prices”. But if they stay low, then GS sees downside risks to its CPI projection. As a result, BI should cut rates 25bp at each of the June, July and August meetings.

• “A later start to Fed easing (we expect the first Fed policy rate cut in May) and/or weaker-than-expected USDIDR could skew risks to BI policy rates in a hawkish direction (i.e. later or fewer cuts) compared to our baseline projections. However, even if rate cuts are delayed, BI could potentially ease liquidity conditions ahead of explicitly cutting policy rates, thereby pushing effective rates lower and easing domestic financial conditions.”
• “We continue to expect a 2.0% of GDP fiscal deficit this year, modestly lower than the government budget of 2.3% of GDP.”
• “Combined with our view that Bank Indonesia will cut policy rates this year and proactively ease liquidity conditions, while government bond supply could be lower-than-budgeted, we continue to have a bullish outlook on the IDR bond market. We maintain our short term IDR outlook as bullish.”