The start of the easing cycle
As the world knows, on September 18, 2024, the US Federal Reserve Open Market Committee Meeting (FOMC) decided to slash the Federal Funds rate by 50 basis points. That was the first step in the US Fed's easing cycle. One day prior to that decision, after convening for two days, Bank Indonesia also announced the cut of its benchmark interest rate by 25 basis points to a level of 6%. That decision was welcomed by the market.
In Indonesia, in the past, the movement of the benchmark interest rate had closely followed the US Federal Funds Rate. However, in the past few years, rate moves have not always followed a similar pattern. However, Bank Indonesia always tries to maintain a close watch on the movements of the US interest rate, especially because of its effect on Indonesia's exchange rate.
Given this background, the decision made by Bank Indonesia to slash the benchmark rate prior to the US rate cut was considered a brave and wise move. If Bank Indonesia had waited for the US decision, then its policy move would have had to be delayed for about a month.
The Central Board of Statistics released its balance of trade report for the month of August 2024. The trade balance in August was reported at much higher surplus than the previous month: the surplus in August was $2,899.7 million compared to the $500.9 million achieved in July. The total trade surplus from January until August 2024 stands at $18,848.5 million, 22.50% lower than the $24,319.8 million achieved in the same period of the previous year. Exports in August 2024 reached $23,564.9 million, while imports were $20,665.2 million. Cumulative exports from January to August 2024 reached $170,891.3 million, while cumulative imports for the same period reached $152,042.8 million.
The Central Board of Statistics also reported the Consumer Price Index for the month of August, which registered slight deflation of 0.03%. With that monthly inflation, Y/Y inflation in August 2024 reached 2.12%, a level in the lower part of the inflation corridor administered by the Central Bank. Against that background, Bank Indonesia decided to slash the benchmark rate by 25 basis points to a level of 6.00% at its policy meeting held on September 16-17, 2024.
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