BI May Hold Rates Amid US Inflation Decline, External Pressure

Bank Indonesia (BI) may keep its benchmark interest rate at 5.75% this month, according to Lead Economist Irman Faiz of PT Bank Danamon Tbk (BDMN). The decline in US inflation has given BI some room to maneuver, but it is not yet enough to justify a rate cut.

US inflation fell to 3.4% year on year in July from 3.5% in June, while core inflation eased to its lowest level since March 2021. This has prompted markets to scale back expectations of a Federal Reserve (Fed) rate hike in the near term, with CME FedWatch showing a 61.9% probability of the Fed holding its rate at 3.50%-3.75% in September and a 38.1% probability of a 25-basis-point hike.

Irman noted that US inflation remains above target and the risk of higher energy prices is still a concern, so BI needs to prioritize rupiah stability and external resilience while domestic inflation stays within its target range.