JAKARTA (Reuters): Bank Indonesia will leave interest rates unchanged on Wednesday (Nov 20), aiming to protect the rupiah from further depreciation amid concerns U.S. President-elect Donald Trump's policies could spur dollar strength, a Reuters poll of economists found.
With inflation having stayed within BI's target range of 1.5-3.5% for over a year, the central bank can focus on the rupiah which despite regular interventions has dropped nearly 5% from a September peak, arguing for fewer rate cuts from the bank whose mandate is to maintain currency stability.
Some economists in the latest survey revised their expectations from a rate cut in an October poll to a hold at the Nov. 20 meeting.
Over 70% of respondents, 25 of 34 in the Nov. 11-18 Reuters poll, predicted the central bank would keep its benchmark seven-day reverse repurchase rate (IDCBRR=ECI), opens new tab at 6.00% this week.
Median forecasts showed BI cutting rates by 25 basis points to 5.75% in December, a quarter percentage point less than the previous poll predicted.
"I think it's likely to be a close call. They're a little bit concerned about the currency. It has fallen back since the election in the U.S. so they'd like a bit more clarity on what the outlook is," said Gareth Leather, senior Asia economist at Capital Economics. "I suspect they'll keep rates on hold this month."
Among those who expected BI to pause in November, two-thirds or 16 of 25 economists expected a 25 basis point cut to 5.75% in December.
Median forecasts showed rates falling to 5.00% in the fourth quarter next year compared to the second quarter in the last two polls.
The expected delay partly reflects diminishing bets on rate cuts from the U.S. Federal Reserve as Trump's policies - broad-based tariffs and tax cuts - are seen as inflationary, keeping the U.S. dollar stronger for longer.
"BI will likely struggle to find more opportunities to keep easing monetary policy in a stronger U.S. dollar environment," said Brian Tan, senior regional economist at Barclays.
Meanwhile, equity markets in Taiwan were pinned at an over two-week low on Monday on expectations around a moderation in October exports from the country and potential risks surrounding a hike in tariffs by the incoming Republican administration in the US.
Stocks in Taipei slumped up to 1.1%, with semiconductor majors like Taiwan Semiconductor Manufacturing Co and Foxconn Technology dropping 1% and 8.5%, respectively. The Taiwan dollar was down 0.2%.
Taiwan's October exports, scheduled to be released on Wednesday, are expected to show a year-on-year growth of 3.8%, down from 4.6% in September, according to market estimates. "While demand for electronics, driven by cloud AI, AI servers, and high performance computing chips, remains strong, it may have already reached its peak," said DBS analysts.
The incoming U.S. Republican president Donald Trump and his administration are expected to implement tariff hikes and technology restrictions, which could be hurt emerging market assets and threaten the outlook for export-heavy nations like Taiwan.
Morgan Stanley noted that the incoming U.S. Republican administration's potential raise in tariffs seems a potential challenge for Taiwan given its high exposure to traded goods sectors like semiconductors.
Other stock markets in the region were mostly upbeat, with equities in Seoul rising 2.2% led by a jump in Samsung Electronics post the firm's buyback plans. Shares in Bangkok and Kuala Lumpur added 0.8% and 0.7%, respectively.
The move in Asian shares comes after the global sell-off in equities last week as the indication of Donald Trump's inflationary policies and improved U.S. retail sales data made investors expect the Federal Reserve may pause its easing cycle in 2025.
The Philippines on Monday commenced a new interest rate swap market in an effort to ramp up liquidity and bond trading in its bid to boost the capital market. Shares in Manila were trading 1% higher while the peso was mostly unchanged.
Currencies in emerging Asia were mostly subdued on Monday while investors keenly awaited the rate decision from Bank Indonesia later in the week to gauge the monetary policy trajectory for Southeast Asian central banks.
Market participants are currently estimating the Indonesian central bank to stand pat on interest rates but expect Bank Indonesia to maintain a cautious approach going forward.
Investment bank Mandiri Sekuritas now expects Bank Indonesia to cut a total of 50 basis points in 2025, fewer than its previous expectation of 100 basis points. The rupiah was trading flat against the greenback while stocks in Jakarta dropped 0.2%. - Reuters
