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BI expects just 75 basis points of Fed rate cuts this year, all in H2
According to Bank Indonesia (BI) projections, the United States Federal Reserve (Fed) will cut its benchmark interest rate by less than one percentage point this year. Nevertheless, the central bank expects the rupiah to strengthen versus the dollar.
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Finance Minister Sri Mulyani (left), Coordinating Economic Minister Airlangga Hartarto (second left), Bank Indonesia Governor Perry Warjiyo (second right) and Financial Services Authority chairman Mahendra Siregar (right) pose for a photo before the press in Jakarta on July 28, 2023. (The Jakarta Post/Deni Ghifari)
B
ank Indonesia (BI) expects the United States Federal Reserve to reduce its benchmark interest rate by just 75 basis points this year.
In a press briefing following the central bank’s two-day monthly monetary policy meeting, BI Governor Perry Warjiyo said he expected the Fed to reduce the federal funds rate (FFR) three times in the second half of 2024, pushing it from 5.25 to 5.50 percent down to 4.50 to 4.75 percent.
Even though that projection points to a slower pace of US rate reductions than many market observers currently anticipate, BI sees the dollar weakening against the rupiah.
“We estimate that — and it appears to have started now — the dollar strengthening will stop, and there is even a tendency [for it] to weaken,” said Perry on Wednesday.
Uncertainty regarding the “timing and magnitude” of the Fed’s cuts would remain, affecting fluctuation in the foreign exchange market, and the rupiah was not immune to that in the short term, noted Perry.
However, he claimed that the Indonesian currency would remain stable and the trend even showed that it was on track to strengthen, since “all fundamentals supported rupiah strengthening”.
As widely expected, BI left its own benchmark interest rates unchanged.
