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Bank Indonesia (BI) is set to announce its Interest Rate Decision on 19 Wednesday. BI is likely to want to assess the impact of past easing and to the 7-day reverse repo at 4% as IDR depreciation acts as a barrier to another rate cut, economists at TD Securities inform.

Key quotes

“We expect Bank Indonesia to keep its 7d reverse repo rate on hold at 4% on Wednesday 19 August. While inflation pressure has continued to ease there are signs of improvement in the economy. BI may be cognisant of the recent depreciation in IDR, which will also likely steer them to hold rates and assess the impact of previous easing on the economy.”

“IDR has steadily weakened against USD since early June. It has fallen by around 6.7% over this period and is likely to weaken further over the short-term. BI will take particular note of this, acting as a factor that will contribute to keep policy on hold at this meeting. A rate cut would likely reduce further IDR’s yield attraction, contributing to further weakness in the currency, something that BI will likely want to avoid.”