By Rahul Trivedi
BENGALURU (Reuters) – Bank Indonesia (BI) will resume its easing cycle on Wednesday with a quarter-point interest rate cut as the rupiah’s recent strength gives the central bank room to focus on supporting economic growth, a Reuters poll of economists found.
Southeast Asia’s largest economy grew 4.87% last quarter, its slowest pace in three years, while the rupiah recovered from April losses, easing pressure on BI to keep monetary policy tight. April inflation rose to be within the central bank’s 1.5%-3.5% target range, official data showed.
The bank has kept interest rates unchanged for the past three months. BI Governor Perry Warjiyo said in April the central bank’s short-term priority was to stabilise the currency, saying: “Once stability is maintained, the room for a rate cut will be more open and that would be the time to decide on future interest rate policy.”
Since then, the rupiah has strengthened over 2.4% against the U.S. dollar.
More than 60% of economists, 20 of 32, in a May 14–19 Reuters poll forecast BI will cut its benchmark seven-day reverse repurchase rate by 25 basis points to 5.50% on May 21. The remaining 12 expected no change from 5.75%.
The overnight deposit and lending facility rates were also forecast to be lowered by 25 basis points to 4.75% and 6.25%, respectively.
“After an extended pause, BI is expected to lower rates in May, tapping into the recent window of currency appreciation as well as an improvement in risk appetite after the recent U.S.-China bilateral tariff cuts,” said Radhika Rao, senior economist at DBS Bank.
Among those who provided a longer term outlook on rates, 55% of economists, 15 of 27, expected the key rate to be 5.25% by the end of the third quarter. Beyond that, there was no clear consensus among economists on where rates would be.
Projections for 2025 varied widely, with some economists expecting just a 25 basis points cut and others predicting as much as 100 basis points of easing.
But median forecasts showed the end-year policy rate at 5.25%, down only 50 basis points from the current level as economists weighed the impact of recent volatility in the rupiah.
The rupiah is projected to trade at 16,500 per U.S. dollar by the end of the third quarter, about 2.5% weaker than at the start of 2025, a separate Reuters poll showed last month.
Several economists in the poll said the currency outlook may limit BI’s ability to pursue aggressive rate cuts to support growth, given its mandate to maintain currency stability.
“BI will be more gradual in its approach to rate cuts this year given IDR volatilities. But it will remain opportunistic and cut by more if IDR stability can be upheld for longer periods of time,” said Lavanya Venkateswaran, senior ASEAN economist at OCBC Bank.
(Other stories from the May Reuters global economic poll)
(Reporting by Rahul Trivedi; Polling by Veronica Khongwir and Susobhan Sarkar; Editing by Joe Bavier)
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