Mitul Kotecha, senior emerging markets strategist at TD Securities, suggests that they are expecting the Bank Indonesia to maintain its 7-day reverse repo rate at 6.00% at its policy meeting on 25 April.
“Low and declining inflation, a firmer IDR and some stabilisation of external conditions, point to a more confident outlook for Bank Indonesia, paving the way for a rate cut, likely at the May meeting. Why not cut at this meeting? We think that Bank Indonesia will want to assess any change in government policies following the Presidential and Parliamentary elections that took place yesterday while also not wanting to ease until after the official results.”
“IDR gains will offer reassurance IDR appreciation will be reassuring for Bank Indonesia, with the currency up 2.3% versus USD, year to date, and 1.25% month to date. The IDR’s relatively high yield amid low global volatility has attracted investors hunting for carry.”
“While BI will be encouraged by the IDR’s gains, they still see the currency as undervalued and would likely not risk any reversal by abruptly lowering rates. Similarly Indonesia’s bonds have been helped by a relatively high yield, low inflation and IDR stability, resulting in strengthening foreign inflows.”