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Economist at UOB Group Enrico Tanuwidjaja and Haris Handy assessed the lates interest rate decision by the Bank Indonesia (BI).

Key Quotes

“Bank Indonesia (BI) decided to leave its benchmark rate unchanged at 3.75% at its January 2021 monetary policy meeting (MPC). Consequently, BI maintained the Deposit Facility rate at 3.00%, as well as the Lending Facility rate at 4.50%. BI stated that the decision is in line with lower inflation expectation, anchored external stability, and the continued need to support the pace of economic recovery.”

“BI will also remain accommodative and continue to support various policies in order to build optimism for national economic recovery.”

“We expect BI to cut the interest rate in 1Q21 (by 25 basis points), most likely at the February’s MPC, given that data releases such as 4Q20’s GDP and Balance of Payment would have been released prior to that meeting. Our forecast is also conditional upon Rupiah’s stability in February. Should the interest rate cut fail to materialize in 1Q21, it is most likely that the current 3.75% of BI 7-Day reverse has already reached the bottom of interest rate cut cycle started in 2020. On balance, though there remains room for further interest rate cut, we are in the view that even at the current level, it is adequately accommodative to support the economic recovery; while at the same time keeping yield differentials remain in favour of Indonesian assets.”