Just hours before the US Federal Reserve’s widely anticipated start of its easing cycle, Indonesia’s central bank announced its first rate cut in over three years on Wednesday in an effort to support growth in Southeast Asia’s largest economy.
For the first time since February 2021, Bank Indonesia (BI) abruptly lowered the benchmark rate by 25 basis points to 6.00 percent.Of the 33 economists surveyed by Reuters, only three had anticipated the move, with the remaining analysts expecting no change.
According to BI governor Perry Warjiyo, the decision aligns with BI’s prediction that inflation will stay low in 2024 and 2025 and that the rupiah will remain stable. He continued, “It also fits in with BI’s efforts to support economic growth.
Due to shifting risk appetite in international financial markets, the rupiah saw pressure earlier in the year. However, it has since reversed those losses versus the US dollar and is currently trading marginally stronger than it was at year’s end.
This year, the main stock index has also increased by 7.8%, indicating that capital inflows are returning.
According to DBS Bank economist Radhika Rao, “recent rupiah gains and markets pricing in a near certain cut by the US Fed, likely offered BI the headroom to kick-start the easing cycle earlier.” “At this time, we anticipate one more rate reduction by year’s end.” Following BI’s announcement, the currency experienced a brief decline, but it recovered its losses and closed the market at 15,330 per dollar.
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