Bank Indonesia Preview: Forecasts from six major banks, taking a breather

Bank Indonesia (BI) will hold the monthly governor board meeting on Tuesday, September 21. As we get closer to the release time, here are the expectations as forecast by the economists and researchers of six major banks, regarding the upcoming monetary policy decision. The consensus is that BI has no room for further rate cuts. 

See – USD/IDR: Rupiah to gain support from surging exports – ING

Standard Chartered

“We expect BI to keep the 7-day reverse repo rate unchanged at 3.5% to support IDR stability while maintaining its accommodative policy mix to stimulate growth. Still-below target inflation (1.6% YoY in August) and an improved external balance (reflected in a wider trade surplus) to a record-high USD4.4 B in August should give BI room to focus on growth. We maintain our view that after increasing the reserve requirement ratio (RRR) by 150bps in H1, BI will start hiking late next year – by 25bps in Q4-2022 and another 25bps in Q1-2023.”

TDS

“We expect BI to continue with its accommodative stance, leaving the 7-day reverse repo rate unchanged at 3.5%. Given that state spending is likely to stay elevated into 2022, we think BI has reached the end of its easing cycle as fiscal policy takes center stage in supporting recovery. USD/IDR is likely to remain rangebound in a 14,200 and 14,400 range over the short-term. We don't foresee big moves in USD/IDR as investors are likely wary ahead of the Fed FOMC meeting on Wednesday, September 22, and are likely to stay on the sidelines.”

ANZ

“We expect BI to keep its policy rate unchanged at 3.50%. An improving virus situation and the associated easing in restrictions will lift economic activity, reducing the pressure for rate cuts. Meanwhile, the combination of benign price pressures and a strengthening external position will give the central bank scope to keep policy accommodative for longer.”

ING

“Central bank in Indonesia is expected to leave their rate policies on hold. Bank Indonesia’s Governor, Perry Warjiyo, recently indicated a sustained ‘pro-growth’ policy stance over the rest of this year as inflation has been below the central bank’s 2-4% policy target (1.6% YoY in August).” 

SocGen

“We believe that BI is done with its rate easing stance and will keep the policy rate unchanged at 3.5% while retaining an accommodative stance. While supportive monetary policy prevented a precipitous drop in economic activity, the inadequate fiscal response failed to prevent weakening of the economic foundation. Luckily for the central bank, extremely benign inflation (thanks in main to official spending on subsidies, especially on energy) means that monetary policy normalisation is not on the cards, at least for now. However, we do expect the policy rate to rise next year as base effect-driven inflation perks up. We in fact are less constructive on Indonesia’s medium-term growth prospects as monetary policy tightens (by end 2022) and Indonesia reverts to the 3% (of GDP) budget deficit limit in 2023.”

UOB

“With the current global developments, we are of the view that BI has little room to trim its benchmark rate further. Nonetheless, BI will keep its accommodative monetary policy via other monetary, macro-prudential, and liquidity-supporting measures to effectively transmit the lowering of the benchmark interest rate so far into the economy.”