Indonesia: Surprise hike by Bank Indonesia - TDS

Mitul Kotecha, Senior Emerging Markets Strategist at TD Securities, notes that Bank Indonesia surprised by hiking its 7-day repo rate by 25bp, contrary to consensus and TD expectations.

Key Quotes

“We expect the hike to help shore up support for the IDR, likely resulting in a further push towards 14,500 versus USD.”

“BI maintained its stance of guarding IDR in line with fundamentals even as inflation pressure remained limited. BI forecasts CPI to remain manageable within its 2.5-4.5% range, forecasting 3.2% for FY 2018.”

“The hike will help to dampen import demand and BI noted that the hike was aimed at lowering the C/A deficit.”

“We think the bulk of pressure on IDR has passed and do not expect BI to hike as rapidly in the months ahead. Inflation is likely to trend higher and we think BI may still move once more, well ahead of the election in April.”