VIEW: JP Morgan Expects Two BI Rate Cuts In H2 2024

Bank Indonesia left rates at 6.0% as was widely expected. JP Morgan believes that the focus will continue to be on FX stability as the CPI is “expected to remain comfortably within, if not a touch below” the 2.5% mid-point of the target band. Thus easing by the Fed is needed before BI can cut rates too. JP Morgan believes “the prospect of easing in the US Fed funds rate in June provides room for BI to ease, with the proviso that the anticipated US easing would also serve to stabilize the rupiah”.

• “In the event that the external monetary conditions turn more positive, this would open room for BI to ease. The sequencing will likely see a normalization of liquidity conditions together with convergence in the SRBI rate to the FASBI rate, which would be a useful indication of the shift in monetary policy stance.”
• “Subsequently, we expect that the combination of benign inflation and the prospectively softer path for the US$ in 2H24, we expect two 25bp in rate cuts in 2H24.”
• “Ahead of the actual easing in the BI rate, we would anticipate that the stabilization in external conditions would provide room for BI to lower market interest rates following the 77bp rise in the 1-yr bond rate in 2H23 during bouts of US$ strength. Indeed, the 1-yr bond rate declined around 25bp through end of February from end-December but has slowed from end-February to current, suggesting some caution.”