IDR has reached a 5-month low against the USD due to the backup in US yields and bond portfolio outflows. Bank Indonesia (BI) is likely to be mindful not to exacerbate IDR depreciation pressures through further rate cuts. Improving growth prospects should give BI some space to keep rates on hold and economists at TD Securities expect BI to reiterate its accommodative stance on Tuesday, April 20.
BI sees IDR as “very undervalued” following its depreciation over recent months
“We expect BI to keep its 7-day reverse repo rate on hold at 3.50% on Tuesday 20 April amid IDR depreciation concerns.”
“BI is likely to be mindful not to exacerbate IDR depreciation pressures through further rate cuts. In any case, improving growth prospects should give BI some space to keep rates on hold this month. We expect BI to reiterate its accommodative stance.”
“We expect a limited IDR reaction from an on hold decision at this meeting especially given broad consensus for BI to stand pat.”
“Expect further comments at the BI meeting expressing concern about IDR weakness and commitment to keep the currency supported.”