17 Feb 2015
BI surprises with a rate cut, might cut an additional 50bp – TDS
FXStreet (Barcelona) - Cristian Maggio, Head of Emerging Markets Research at TD Securities, expects Bank of Indonesia to cut rates by an additional 50bp, with the central bank drifting slowly to the dovish bandwagon.
Key Quotes
“Bank Indonesia rocked the boat today announcing a surprise 25bp cut of the BI rate and the FASBI rate to 7.50% and 5.50%, respectively, while the Lending Facility rate was held at 8.00%. Though not completely unreasonable, the decision has come against the unanimous consensus view and our own forecast.”
“While we need more time to re-assess Indonesia’s interest rate outlook—and perhaps adjust our USDIDR forecast—we believe there’s a reasonable chance that BI will use time at their disposal to ease policy again until the Fed kick off monetary tightening.”
“We continue to expect a first 25bp hike from the Fed in September, with an incrementally hawkish rhetoric that could defeat any attempt to deliver easing in EMs even before the Fed hikes.”
“That said, we think BI has clearly drifted towards a more dovish rhetoric. With regard to easing rates, BI mentioned that “Such policy measures were instituted based on Bank Indonesia’s conviction that inflation will remain under control at the lower end of the 4±1% range in 2015 and 2016. The current policy direction is consistent with Bank Indonesia’s efforts to reduce the current account deficit to a more sustainable level”.”
“The replacement of ‘such policy is consistent’ with ‘the current policy direction is consistent’ allows us to think that more gradual cuts are in store for the next meetings, provided market conditions remain supportive.”
“We believe that a favourable market response in the coming days will allow BI to cut no less than an additional 50bp, though we need more time to reassess the outlook.”
Key Quotes
“Bank Indonesia rocked the boat today announcing a surprise 25bp cut of the BI rate and the FASBI rate to 7.50% and 5.50%, respectively, while the Lending Facility rate was held at 8.00%. Though not completely unreasonable, the decision has come against the unanimous consensus view and our own forecast.”
“While we need more time to re-assess Indonesia’s interest rate outlook—and perhaps adjust our USDIDR forecast—we believe there’s a reasonable chance that BI will use time at their disposal to ease policy again until the Fed kick off monetary tightening.”
“We continue to expect a first 25bp hike from the Fed in September, with an incrementally hawkish rhetoric that could defeat any attempt to deliver easing in EMs even before the Fed hikes.”
“That said, we think BI has clearly drifted towards a more dovish rhetoric. With regard to easing rates, BI mentioned that “Such policy measures were instituted based on Bank Indonesia’s conviction that inflation will remain under control at the lower end of the 4±1% range in 2015 and 2016. The current policy direction is consistent with Bank Indonesia’s efforts to reduce the current account deficit to a more sustainable level”.”
“The replacement of ‘such policy is consistent’ with ‘the current policy direction is consistent’ allows us to think that more gradual cuts are in store for the next meetings, provided market conditions remain supportive.”
“We believe that a favourable market response in the coming days will allow BI to cut no less than an additional 50bp, though we need more time to reassess the outlook.”