Bank Indonesia (BI) kept its benchmark policy rate (7-Day Reverse Repo) unchanged at 5.75% following its Jun MPC meeting, in line with consensus and our expectations.

BI remains of the view that inflation expectations are “well-anchored” and it expects headline inflation to return to BI’s target range of 2-4% by 3Q23. Jun’s inflation continued to ease and rupiah remains the strongest currency in Asiayear-to-date. 

Today’s MPC decision also stated that BI will increase the frequency and tenor of TD DHE auctions with more competitive rates as an extra policy to anchor rupiah stability. We keep our view for the rate cut cycle to start in 1Q24. The key catalysts for the start of the rate-cutting cycle would be a consistently declining inflation towards its target range, a more anchored and persistent stability of the rupiah, and an increasing need to support the growth momentum ahead.