BI Preview: Forecasts from four major banks, on hold again

Bank Indonesia (BI) will hold its monthly governor board meeting on Thursday, March 16. Here you can find the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank's rate decision.  

BI is expected to keep rates steady at 5.75%. At the last meeting on February 16, the bank also stayed on hold. However, BI could keep an option to increase rates again in order to stabilize the Indonesian Rupiah (IDR). 

ANZ

“We expect BI to hold the 7-day reverse repo rate at 5.75%. IDR volatility has risen lately, but even so, is not an outlier in the broader regional context. Overall, there is little reason for BI to detract from its earlier indication that the rate-hike cycle has concluded.”

Standard Chartered

“We expect BI to keep the 7-day reverse repo rate unchanged at 5.75%, thus maintaining an attractive interest rate spread against USD rates, in order to keep the IDR stable. Stronger-than-expected US economic data and recent hawkish statements by the Fed have increased pressure on EM currencies. However, we think BI will keep policy rates on hold, as the IDR is still strong compared to currencies in the Asian region. BI has said that a total 225 bps of policy rate increases since last August will be enough to return core and headline inflation to its 2-4% target this year. We think BI will stick with the forward guidance but strengthen FX stabilisation policy through market intervention – i.e., spot and domestic non-deliverable forwards (DNDFs) – and selling short-tenor government bonds to maintain interest rate attractiveness.” 

ING

“BI recently declared victory over inflation with Governor Perry Warjiyo indicating that he need not hike rates anymore this year. Decelerating core inflation could give BI a reason to keep rates untouched although recent pressure on the Indonesian Rupiah (IDR) could force the central bank to take a hard look at a potential rate hike.”

SocGen

“We expect the BI to again keep the policy rate (7-day Reverse Repo Rate) at 5.75%. While we believe that BI might have come to the end of its rate hike cycle, there is now a great deal of uncertainty as to its future course of action. A rather hawkish statement by Fed Chair Powell suggesting rates moving higher and faster and remaining elevated for longer raises the possibility of the bank eventually deciding to go further. There is, therefore, a possibility of BI going further and higher for longer. We believe that the monetary policy divergence between Bank Indonesia and the Fed should add to the depreciation pressure on the IDR. However, this time around the depreciation pressure could be partly offset by reduced external vulnerabilities. The adoption of alternative policies to protect the currency could see the IDR weather the storm for a while. However, the risk of a further hawkish repricing of Fed policy could eventually expose the IDR to further weakness. Recent hawkish remarks by Chair Powell solidified expectations of a 50 bps hike in the March meeting. This does not bode well for risk appetite and the IDR. The only other counteracting global macro factor is the China recovery story, which should remain supportive of the IDR in the medium term.”