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Enrico Tanuwidjaja, Economist at UOB Group, assessed the recent decision by the Bank Indonesia (BI) to leave the interest rates unchanged at its January meeting.

Key Quotes

“At the January 2020 monetary policy meeting (MPC), Bank Indonesia (BI) decided to keep its7- day Reverse Repo Rate unchanged at 5.00%., It also maintained the Deposit Facility rate at 4.25%and the Lending Facility rate at 5.75%. BI reiterated that the monetary policy will remain accommodative; consistent with low inflation expectations, maintained external stability, and efforts to support the domestic economic growth.”

“BI forecasts that the full year 2019’s GDP growth is likely to be around 5.1% before accelerating towards the 5.1%-5.5% range for 2020; underpinned by exports recovery (commodity price picked up and higher demand from Indonesia’s trading partner), strong household consumption, and faster investment (driven by infrastructure and the return of business confidence). Going forward, BI will pay a close attention to both global and domestic economy development in utilizing an accommodative policy mix.”

“However, we continue to look for a 25bps cut by BI to 4.75% in Q1 2020; on top of alternative monetary policy via macroprudential and liquidity-supporting measures to effectively transmit the lowering of the benchmark interest rate into the economy.”