Bank Indonesia to keep the benchmark 7-day reverse repo rate unchanged - TDS

Analysts at TDS expect Bank Indonesia to keep the benchmark 7-day reverse repo rate unchanged at 4.75% today and although the decision is in line with consensus, expectations have recently started to drift towards the possibility of a 25bps cut.

Key Quotes

“The reasons that would justify a cut today are 1) still weak albeit recovering growth, 2) a stable inflation environment, and 3) implied Fed hike expectations leaning towards a more dovish outcome. To a closer look, however, these are all short-term explanations. Stronger than expected growth or inflation, and more hawkish policy from the Fed over the medium term than the market is currently anticipating would penalize any attempt to further lower monetary policy in Indonesia, and defeat BI’s attempt to keep USDIDR trading in line with fundamentals. For these reasons, we think BI will exhibit a cautious behaviour today or, alternatively, decide to act on secondary rates and/or bank reserve requirements in order to deliver stimulus via unorthodox measures that would more easily be tolerated by investors.”