Economist Enrico Tanuwidjaja at UOB Group assessed the recent interest rate cut by the Bank Indonesia (BI).
Key Quotes
“Bank Indonesia (BI) 7-day Reverse Repo Rate was lowered by another 25 bps to 5.25% (Consensus: 5.25%, UOBI: 5.50%) at the September 2019 monetary policy meeting (MPC). BI also lowered the Deposit Facility to 4.50%, and the Lending Facility to 6.00%. This marked the third rate cut in a row since July 2019, amidst efforts to prop up growth. BI said that the policy is consistent with low inflation expectations (below midpoint target range), still-attractive returns on domestic financial investment assets, and act as pre-emptive step to drive the domestic growth amidst the global economic moderation”.
“More importantly, in addition to the benchmark rate cut, to ensure the liquidity is adequate and to stimulate growth during the difficult and challenging period, BI will also implement various policy measures, which include: relaxation of macroprudential policies (effective 2nd December 2019), loosening the Loan to Value/Financing to Value (LTV/FTV) ratio for property and vehicle purchase (effective 2nd December 2019) and implementation of reverse repo tradeable government securities (RR SBN) for all tenors from 7 days to 12 months (effective 4th October 2019)”.
“The latest rate cut would bring our 2020 forecast ahead and now we are looking at another 25bps cut in December 2019, bringing our year-end BI rate forecast to 5.00%. Given the lag effects of the rate cuts in affecting the real economy, especially during challenging global and domestic business prospects, and noting the perennial risks of widening current account deficit and a more elevated inflation rate, we now revise our 2020 forecast of just one more 25bps rate cut by Q1 2020 to 4.75% and for the rate to remain throughout next year”.
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