Bank of Indonesia Awaits Fed’s Move Before Monetary Easing Cycle

In a highly anticipated move, Bank Indonesia (BI) is set to maintain its dovish stance at its upcoming policy meeting on September 18, with the majority of economists predicting that the BI-Rate will remain unchanged at 6.25% for the fifth consecutive month. This decision comes as no surprise, given the global economic landscape and the expected interest rate cut by the Federal Reserve (Fed) later this week.

The timing of this decision is crucial, as policymakers may want to gauge the readings coming out of the Fed meeting before making any changes. Bank Indonesia has been waiting for the Fed to make the first move before embarking on its own easing cycle, which is expected to start in the fourth quarter. This cautious approach is a reflection of the complex and interconnected nature of global economies.

While some economists are predicting a quarter-point reduction in the BI-Rate to 6%, most expect Governor Perry Warjiyo and his board to maintain their dovish tone and set the stage for a monetary pivot in October. A more accommodative monetary stance would help the new government achieve its goal of ramping up growth in Southeast Asia’s largest economy to as high as 8% annually.

However, this decision is not without its challenges. The expected slowdown in overseas inflows could put renewed pressure on emerging-market currencies, including the rupiah. This could have far-reaching consequences for Indonesia’s economic growth and development. As a result, policymakers may be hesitant to make any significant changes to the BI-Rate.

Despite these concerns, most economists believe that Bank Indonesia will maintain its dovish stance at the upcoming policy meeting. This decision would mark a significant departure from the previous hawkish approach of Governor Warjiyo’s predecessor, Agus Martowardojo. Under his leadership, the BI-Rate was increased on three separate occasions to combat inflation and stabilize the rupiah.

However, since taking office in 2018, Governor Warjiyo has pursued a more accommodative monetary policy, aimed at stimulating economic growth and job creation. This approach has paid dividends, with Indonesia’s economy growing at its fastest pace in six years. However, the ongoing trade tensions between the US and China have created uncertainty and volatility in global markets.

Against this backdrop, Bank Indonesia’s decision to maintain its dovish stance is seen as a prudent move by most economists. By waiting for the Fed to make the first move, policymakers can better gauge the impact of monetary easing on the economy and avoid any potential risks associated with premature rate cuts.

Moreover, a more accommodative monetary policy would help Indonesia achieve its goal of ramping up growth in Southeast Asia’s largest economy to as high as 8% annually. This would be a significant achievement, given the challenges posed by the ongoing trade tensions and the expected slowdown in overseas inflows.

In conclusion, Bank Indonesia’s decision to maintain its dovish stance at the upcoming policy meeting is seen as closely tied to global developments and the Fed’s expected interest rate cut. While some economists predict a quarter-point reduction in the BI-Rate to 6%, most expect Governor Warjiyo and his board to maintain their accommodative tone and set the stage for a monetary pivot in October.

Ultimately, this decision will have far-reaching consequences for Indonesia’s economic growth and development. By waiting for the Fed to make the first move, policymakers can better gauge the impact of monetary easing on the economy and avoid any potential risks associated with premature rate cuts.

The Impact on Indonesia’s Economy

Indonesia’s economy is expected to grow at a faster pace in 2020, driven by a more accommodative monetary policy and an increase in government spending. The country’s economic growth has been stagnant for several years, but the new government’s policies are aimed at stimulating growth and job creation.

A more accommodative monetary policy would help Indonesia achieve its goal of ramping up growth to as high as 8% annually. This would be a significant achievement, given the challenges posed by the ongoing trade tensions and the expected slowdown in overseas inflows.

Moreover, a more accommodative monetary policy would also help reduce unemployment and poverty rates in Indonesia. The country’s unemployment rate has been increasing for several years, but the new government’s policies are aimed at creating jobs and stimulating economic growth.

The Impact on Emerging-Market Currencies

The expected slowdown in overseas inflows could put renewed pressure on emerging-market currencies, including the rupiah. This could have far-reaching consequences for Indonesia’s economic growth and development.

A weaker rupiah would make imports more expensive, leading to higher inflation and reduced purchasing power. Moreover, a weaker currency would also lead to a decrease in investor confidence, making it more difficult to attract foreign investment.

However, Bank Indonesia’s decision to maintain its dovish stance is seen as a prudent move by most economists. By waiting for the Fed to make the first move, policymakers can better gauge the impact of monetary easing on the economy and avoid any potential risks associated with premature rate cuts.

The Impact on Global Markets

Bank Indonesia’s decision to maintain its dovish stance has implications for global markets. A more accommodative monetary policy would lead to a decrease in interest rates, making it cheaper for companies to borrow money and invest in new projects.

This would have far-reaching consequences for the global economy, particularly in emerging markets where access to credit is limited. Moreover, a more accommodative monetary policy would also lead to an increase in commodity prices, benefiting Indonesia’s exporters who rely on commodity exports.

In conclusion, Bank Indonesia’s decision to maintain its dovish stance at the upcoming policy meeting is seen as closely tied to global developments and the Fed’s expected interest rate cut. While some economists predict a quarter-point reduction in the BI-Rate to 6%, most expect Governor Warjiyo and his board to maintain their accommodative tone and set the stage for a monetary pivot in October.

Ultimately, this decision will have far-reaching consequences for Indonesia’s economic growth and development. By waiting for the Fed to make the first move, policymakers can better gauge the impact of monetary easing on the economy and avoid any potential risks associated with premature rate cuts.