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UOB Group’s Economist Enrico Tanuwidjaja and Haris Handy assessed the recent decision by the Bank of Indonesia to leave rates unchanged.

Key Quotes

“Indonesia’s central bank left its benchmark rate unchanged for a second straight month at 4.50% in May 2020 monetary policy meeting (MPC). Consequently, Bank Indonesia (BI) maintained the Deposit Facility rate at 3.75%, as well as the Lending Facility rate at 5.25%. BI reiterated that the decision is in line with the need to maintain the exchange rate stability amidst heightened global financial market uncertainty. Nevertheless, BI still sees the room for further interest rate cut to boost the economic growth (notably in 2020), given mild inflationary pressure.”

We had expected a stand-pat decision from BI and are keeping our forecast of 25bps cut by BI to 4.25% in Q3 2020, which would bring the 7 Day Reverse Repo rate back to its lowest point before the 175bps hike in 2018. Going forward, we still expect BI to remain accommodative. The accommodative monetary stance being adopted at this point, should also ensure that the recovery in Indonesia’s domestic market and overall economy to be expedient and sustained when the pandemic concerns dissipate.”