Indonesia and Thailand to Keep Rates Steady This Week: Bloomberg

The central banks of Indonesia and Thailand, Southeast Asia's two largest economies, are expected to maintain current interest rates this week, reports Bloomberg. The decisions come as Indonesia grapples with a weakening rupiah and Thailand's central bank prioritizes economic growth.

In Indonesia, where the rupiah fell below 16,000 to the dollar last week, prompting central bank intervention, 18 out of 31 economists surveyed by Bloomberg anticipate a rate hold at 6%. However, the decision remains close, with 13 analysts predicting a rate cut due to weak consumer demand and slowing price gains.

"With the currency currently under so much stress that central bank officials are describing their market intervention as 'quite bold,' we doubt there is sufficient comfort for a 25 bps rate cut even if the Fed is easing," wrote Barclays Plc economist Brian Tan, in a note cited by Bloomberg.

The rupiah has depreciated more than 5% against the US dollar this quarter. Bank Indonesia (BI) may need to continue intervening in the currency market into the first quarter of 2025, according to Helmi Arman, an economist at Citigroup, who also sees potential for four 25 basis point rate cuts next year, starting in March.

BI may also continue using rupiah securities (SRBI) to attract foreign funds and curb rupiah volatility. Foreign exchange reserves dipped slightly last month to $150.2 billion, while average SRBI yields remained above 7% in the latest auction.

In Thailand, where inflation has remained below the central bank's target range for six consecutive months, 21 out of 23 analysts surveyed expect the Bank of Thailand (BOT) to keep rates unchanged at 2.25%. The BOT and the Thai government have been at odds for some time over how to stimulate the economy after a decade of sluggish growth.

"Our base case is for the BOT to move again in the first quarter instead with another 25-basis-point cut," stated Krystal Tan, an economist at Australia & New Zealand Banking Group.

The Thai government, however, is pushing for an immediate rate cut, with Finance Minister Pichai Chunhavajira reiterating his call for easing given benign inflation. The International Monetary Fund (IMF) has also backed the government's call for more easing, arguing that a further rate reduction can support the economic recovery and improve borrowers' debt-servicing capacity.

Despite these differences, both the BOT and the Ministry of Finance have agreed that an inflation target of 1% to 3% for 2025 is appropriate and conducive to economic growth. Inflation currently remains below the lower end of this range.

The upcoming decisions by Indonesia and Thailand’s central banks come amid global uncertainty, including the potential for US tariffs on China, slowing Chinese growth, and weakening currencies against the US dollar. These factors may prompt central banks across Asia to reconsider their easing pace.