VIEW: Pantheon Maintains 5.25% End-2025 Rate View

Pantheon disagrees that a rate hike was needed to support the rupiah, as the currency was not being targeted and Bank Indonesia (BI) has ample FX reserves to defend it. BI increased rates 25bp at its April 24 meeting as a “pre-emptive” move to ensure FX stability and keep inflation in the band. Pantheon maintains its view that there will be 50bp of rate cuts starting in Q4 but now expects another 25bp in Q1 after today’s decision.

• “All told, we reckon that today’s hike will prove to be a one-and-done, and continue to believe that BI will start a gradual normalisation of policy in Q4, as soon as headline inflation falls below its actual 2.5% target. We still expect 50bp-worth of easing by end-2024, and are now adding another 25bp cut in 2025 in light of today’s move, implying no change to our end-2025 BI rate projection of 5.25%.”
• Pantheon also notes that the IDR is “far from being one of the region’s worst-performing currencies, and it’s looking undervalued from a real effective exchange rate basis”.
• “Where we disagree fundamentally with the Bank is its assumption that GDP growth is more likely than not to accelerate this year. Indeed, the Board retained its 2024 forecast range at 4.7-to-5.5%. We believe that growth will slip to 4.8% from 5.0% in 2023, due to a slowdown in consumption and investment growth, while any bounce in export growth is likely to be muted.”