In response to concerns that US President-elect Donald Trump’s policies could boost the dollar’s strength, Bank Indonesia will leave interest rates unchanged on Wednesday ( Nov 20 ).
The central bank can concentrate on the rupiah, which has decreased by nearly 5 % from its peak in September, while inflation has remained within the BI’s target range of 1.5 % to 3.5 % for more than a year. This calls for less rate cuts from the bank, whose task is to maintain currency stability.
In the most recent poll, some economists changed their expectations from a price cut to a keep at the Nov. 20 meet.
Over 70 per cent of responders, 25 of 34 in the Nov 11-18 Reuters surveys, predicted the central bank may keep its benchmark seven-day change buy price at 6.00 per cent this year.
Median forecasts for BI’s December rate reductions were 25 basis points to 5.75 %, which is a quarter of the previous poll’s prediction.
” I think it’s likely to be a close contact. They’re a little bit concerned about the money. They would prefer a little more clarity on the outlook since the US election, according to Gareth Leather, older Asia economist at Capital Economics.
” I suspect they’ll keep rates on hold this month”.
Among those who expected BI to wait in November, two-thirds or 16 of 25 economists expected a 25 basis point reduce to 5.75 per cent in December.
In the middle forecasts, rates decreased by 5.5 % in the fourth quarter of next year from the previous two surveys.
As Trump’s policies, including broad-based taxes and tax breaks, are perceived as expansionary, keeping the US dollars stronger for longer, the expected wait partially accounts for the declining bets on price cuts from the US Federal Reserve.
In a more favorable US dollars culture,” BI will probably struggle to find more opportunities to ease monetary policy,” according to older local economist Brian Tan of Barclays.
We think that the risks have increased, leading to a later resumption of BI price cuts and a higher switch rate than would otherwise have occurred.