Citigroup: US in early phase of recession, opportunity for BI-rate cut
JAKARTA – Chief Economist of Citi Indonesia, Hemi Arman, revealed that the US economy is probably heading towards recession. Met at Citi Digital Leaders Summit 2024, Arman further mentioned that the US market expects interest cut rate from the Feds.
“Citi US economists already believed that the US is probably in a recession, given the rising unemployment rate and weak inflation data that has been coming out,” he explained during his Economic Outlook session at said event last Wednesday (7/8).
According to Arman, high unemployment rate that is not accompanied with weakening US inflation may lead to the Feds starting its interest rate cutting cycle, starting from 50 bps in September, another 50 bps in November, and finally 25 bps at the end of the year.
“So, we predict total interest rate cut by the Feds of up to 125 bps,” added Arman.
The expectation of interest rate cut by the Feds further triggers Indonesia’s market expectation towards BI-rate cut, as well.
However, Bank Indonesia’s (BI) hesitance to lower its benchmark interest rate should be understood considering the volatility of foreign exchange trend. Within the past year, the trend of US Dollars (USD), particularly towards Indonesian Rupiah (IDR), has been fluctuating, even hitting the peak at IDR 16,500 last June.
Thankfully, within the past weeks, Arman said, capital inflow to the government bond market has improved, after detecting a quite significant capital outflow within certain months throughout 2024.
“In some months, we even saw out outflows of Indonesia’s government bond market, which explains the increasing pressure in the currency that we see,” Arman added.
Within the past month, USD has indeed slowed down from IDR 16,293 to IDR 15,939 as of today, August 8, 2024. (ZH)