Indonesia: Bank Indonesia likely to maintain status quo - TDS

Mitul Kotecha, senior emerging markets strategist at TD Securities, expects no change from Bank Indonesia, with the 7d reverse repo likely to be maintained at 6% on Thursday 20th June, but think this meeting is a much closer call than recent ones.

Key Quotes

“BI is edging towards a rate cut amid low inflation and slowing activity, but will likely want to see further signs of IDR stability before pulling the trigger to begin reversing the 175bp of hikes implemented in 2018.”

“We think it is premature for BI to ease policy at present given the risks of IDR weakness. Indeed there are a significant minority of analysts (5/28 in Bloomberg) looking for policy easing, suggesting that IDR may find some support if BI does not ease, but could drop further if it does.”

“Nonetheless, various officials are openly discussing prospects for rate cuts including BI Governor Warjiyo who highlighted yesterday that there is “room to lower interest rates”, while acknowledging that the market conditions are “still full of uncertainties”. The global backdrop where markets are increasingly pricing in Fed rate cuts is conducive to easing by central banks across Asia but we think BI will want to wait for uncertainties to fade before easing.”