Bank Indonesia warns of caution in interest rate cuts as Trump approaches victory - BNN Bloomberg

(Bloomberg) — Bank Indonesia’s monetary policy will focus on maintaining stability in the short term as a likely victory for Donald Trump in the U.S. presidential election will increase pressure on the rupiah, the governor said.

While the central bank still sees room for more interest rate cuts, the short-term focus will be on maintaining the stability of the rupiah, Bank Indonesia Governor Perry Warjiyo told parliament on Wednesday. He said caution is needed in light of a likely Trump presidency, an uncertain Federal Reserve easing path and heightened geopolitical tensions.

“We are looking at the development of the American elections, where the preliminary results showed that Donald Trump is in the lead,” said Warjiyo. “What we see is that the dollar will remain strong, US Treasury yields will remain high and the trade war may continue.”

“These dynamics will impact all countries, especially emerging markets and Indonesia, in terms of exchange rate pressures, capital flows and uncertainty in financial markets. These are all issues that BI must respond to carefully.”

The rupiah pared its losses to 0.6% against the dollar following the governor’s statements, after falling as much as 0.8% on Wednesday.

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The comments underline how the US election – and the market volatility it has caused – could complicate the monetary easing path for emerging markets. Bank Indonesia had started cutting its key interest rate in September but halted its easing campaign last month as the rupiah fell. Citigroup Inc. and Barclays Plc are among those who see a greater chance of re-entering the November 20 meeting.

The central bank said earlier on Wednesday that it is ready to take action to ease sharp swings in the exchange rate, deploying its so-called triple intervention in the foreign exchange market, domestic non-deliverable futures markets and secondary government bond markets. The local currency has fallen 4.4% this quarter on concerns that a Trump presidency could usher in higher tariffs that could dampen global growth.

“BI will always monitor the exchange rate movements of the rupiah and other currencies, and will certainly make several attempts to stabilize the exchange rate if there is an excessive increase in volatility,” said Fitra Jusdiman, director of monetary and securities management at the central bank. , said in a cell phone message.

“BI has anticipated various scenarios of the US presidential election results and has also prepared mitigation measures for its possible consequences,” he added.

However, a longer pause could weigh on the outlook. Southeast Asia’s largest economy is already seeing steadily declining inflation and a struggling manufacturing sector, while gross domestic product growth hit a one-year low of 4.95% last quarter.

While Bank Indonesia maintained its GDP growth forecast for this year at 5.1%, supported by exports and investment, Warjiyo acknowledged that spending, especially among lower income segments, needs further support. More relaxations are on the table, but the governor indicated that the markets may have to wait a little longer.

“We started cutting BI rates in September and we still see room for further rate cuts amid low inflation, although the near-term focus remains on rupiah stability due to high global momentum,” it said he. “Bank Indonesia will continue to balance monetary policy between stability and growth in 2025.”

Meanwhile, while Bank Indonesia has offered incentives to boost bank lending to labor-intensive sectors, PT Bank Maybank Indonesia said a rate pause may not last too long if policymakers are concerned about growth.

“A significantly lower BI rate will support domestic demand activities that have substantial impacts on the economy,” the report said.

(Updates with Bank Indonesia interest rate outlook, analyst commentary.)