UOB Projects Fed Reference Interest Rate To Be At Level 3.25 Percent Early 2026

JAKARTA - ASEAN Economist United Overseas Bank Limited (UOB) Enrico Tanuwidjaja projects that the benchmark interest rate of the United States (US) central bank The Federal Reserve (The Fed) will be at an upper limit level of 3.25 percent in early 2026.

In the Federal Open Market Committee (FOMC) in September 2024, the Fed cut its benchmark interest rate by 50 basis points (bps) to around 4.75 to 5.00 percent.

Enrico detailed that the Fed will still double the benchmark interest rate by 25 bps each.

"The upper limit threshold will drop to 4.5 percent (at the end of 2024)," said Enrico in the UOB Economic Outlook 2025 Ushering a New Dawn for Remarkable Indonesia at the Kempinski Hotel, Jakarta, quoted from Antara, Wednesday, September 25.

In 2025, he continued, the Fed will cumulatively lower its benchmark interest rate by 100 bps from 4.5 percent by the end of 2024 to 3.5 percent by the end of 2025.

"Next year 100 bps cumulative from 4.5 percent to 3.5 percent," said Enrico.

On the other hand, he still reminded the risk of an economic recession in Uncle Sam's country, as happened in 2001, 2008 and before the COVID-19 pandemic.

This time the decline will be a bit of interest. It could be that he dropped, stopped for a moment, then went down again, if the economy was needed. However, if it is still strong, he will cut and maybe he should go up again. Maybe this second is related to the risk of fiscal US," said Enrico.

Meanwhile, for the benchmark interest rate of Bank Indonesia (BI), he projects that there will be another decrease in the fourth quarter of this year.

For the BI rate, we are of the view that the cut that started this month will still continue. Maybe one more time in the fourth quarter, it could be more," said Enrico.

According to him, BI has taken pre-emptive steps by lowering the benchmark interest rate by 25 bps in advance at the Board of Governors' Meeting (RDG) this September.

"BI has stolen a start to stimulate the monetary process, so that our economy when the transition comes (government transition) in the economic sector wants to work," said Enrico.