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Analysts at TD Securities are expecting Bank Indonesia (BI) to keep its policy seven day reverse repo rate on hold at 6.00% at its meeting on 21 March, marking its fourth consecutive meeting that policy has been unchanged following 175bp of hikes last year.

Key Quotes

“We think BI remains cognisant of external risks and maintains its desire to rein in the current account deficit.”

“One of the key factors determining policy rate hikes last year was the weakening in IDR. The currency strengthened from end October 18 to the beginning of February 19, allowing BI some breathing space. Since then IDR has come under renewed pressure, falling by over 2% against the USD. This depreciation will reinforce expectations of no change in policy at this meeting.”

“Rather than ease monetary policy, BI is likely to prefer to implement macroprudential easing measures in unison with the government to cushion the economy. In any case the economic impact of higher rates has so far been limited, with high frequency indicators remaining resilient.”

“We expect CPI to remain soft throughout H1 19, but to move higher in H2 19. On the face of it this suggests some space to ease policy but we think BI’s focus on external risks suggests that rates will be left on hold over coming months.”