Citigroup: Indonesia Central Bank's interest rate cut may be delayed

Citibank stated that the political situation in Indonesia has intensified uncertainty in economic growth and public finance. Although the direction of Indonesia's central bank's monetary policy is unlikely to change, if there is significant currency pressure, the timing of future interest rate cuts may be delayed. Despite the mitigation measures taken by Indonesia, the situation remains unstable and tensions may persist in the coming weeks. Escalating political tensions will at least pose downside risks to economic growth in the second half of 2025, and it is currently unclear what measures need to be taken to quell protest activities. Citibank believes that in the short term, Indonesia's foreign exchange market faces multiple pressures, including fluctuations in foreign inflows into the stock market, resident capital outflows, and an increase in forex hedging by bond investors. Foreign exchange market pressure may delay the expected timing of policy rate cuts, but is unlikely to change direction. Citibank still expects Bank Indonesia to cut rates in September, but emphasizes that if the central bank is forced to focus on stabilizing the Indonesian rupiah, the rate cut may be delayed.