Indonesia's Central Bank Kicks Off Easing Cycle

By Ying Xian Wong

Bank Indonesia has joined the growing ranks of central banks in Asia that are lowering interest rates, delivering a cut on the cusp of a Federal Reserve meeting that could start the easing cycle in the U.S.

The Indonesian central bank cut its benchmark seven-day reverse repo rate by 25 basis points to 6.0% on Wednesday, defying expectations that it would keep policy settings steady for a fifth straight meeting.

The central bank also lowered its overnight deposit facility rate to 5.25% and its lending facility rate to 6.75%.

Five of seven economists polled by The Wall Street Journal had expected the BI to stay on hold, while the other two projected a rate cut. The central bank has been dropping hints about a rate reduction for some time, so long as inflation stays contained and the rupiah stable.

Those conditions seem largely in place, with the Indonesian currency picking up ground against the dollar and inflation steady. The specter of Fed cuts on the horizon further backs the case for looser policy, with past comments by Bank Indonesia Gov. Perry Warjiyo signaling that it is watching the rate gap with the U.S. closely.

"The onus for BI rate cuts is underpinned by Indonesia's low inflation, current account (CA) deficit and steady GDP growth," CIMB economists led by Lim Yee Ping said in a note.

The rupiah is at a level not seen since September 2023, when the BI benchmark rate was 5.75%, they said.

Ahead of Wednesday's decision, economists had wondered if the Indonesian bank would wait for more evidence of currency stability before pivoting. Many had also thought BI would want the dust of the Fed meeting and the U.S. elections, which it mentioned at its prior meeting as key factors to watch, to settle before pulling the policy trigger.

Now that Indonesia has joined the Philippines and New Zealand in unwinding tight monetary policy, the focus turns to which regional economy will be next.

Write to Ying Xian Wong at yingxian.wong@wsj.com

(END) Dow Jones Newswires

September 18, 2024 04:03 ET (08:03 GMT)

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