VIEW: ING Forecasts Q3 Rate Cut If Inflation In Band & IDR Stable

Indonesia’s February CPI inflation picked up to 2.8% y/y, higher than expected due to food inflation rising to 6.4% y/y from 5.8%. ING observes that rice inflation was elevated at 19.3% y/y, which pushed aggregate food inflation higher. It still expects a “potential BI rate cut in the third quarter” but only if inflation remains in the band and “pressure on the IDR eases”.

• “Bank Indonesia (BI) recently pushed back on expectations that the central bank would be cutting policy rates in the near term. Governor Perry Warjiyo noted that although there was space to ease policy rates in 2024, he remained wary over a potential pickup in inflation in the first half of the year.”
• “On top of waiting for inflation to cool, BI will also likely base its decision to ease on the stability of the Indonesian rupiah.”
• The healthcare, transport and personal care components also saw slight increases in inflation in February, while clothing & footwear and household equipment slowed.