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USD/IDR Flat After Bank Indonesia Keeps Interest Rates Stable

November 21, 2019 at 12:34 by Vladimir Vyun

Three rows of 5,000, 50,000 and 100,000 Indonesian rupiah notesThe Indonesian rupiah was little changed against the US dollar today after the nation’s central bank kept interest rates unchanged but maintained an easing bias.

The Bank Indonesia decided to keep interest rates stable at today’s meeting, with the benchmark 7-Day Reverse Repo Rate remaining at 5.00%, while the Deposit Facility and Lending Facility rates staying at 4.25% and 5.75%, respectively. The decision followed the four consecutive cuts by 25 basis points. At the same time, the central bank reduced the banks’ reserve requirement ratio by 50 basis points. Analysts viewed such move as more cautious easing aimed at boosting liquidity and growth. The BI signaled that it is going to keep its monetary policy accommodative:

Bank Indonesia will continue to direct the full panoply of its policy instruments towards catalysing economic growth. Macroprudential policy shall remain accommodative to stimulate bank lending and expand economic financing, while maintaining financial system stability.

The bank mentioned the negative impact of the trade conflict between the United States and China on the global economy:

Fallout from the ongoing trade war between the United States and China has hindered global economic growth in 2019. The global economy is projected to decelerate from 3.6% in 2018 to just 3.0% in 2019.

The domestic economy looked relatively robust despite that:

Indonesia’s economy remains resilient despite a moderate slowdown in line with the global economy. GDP growth in the third quarter of 2019 remained relatively stable at 5.02% (yoy), albeit down slightly from the 5.05% (yoy) recorded in the previous period.

While the central bank had a clear easing bias, specialists were divided about how many cuts the BI will perform in the foreseeable future. Analysts at Australia and New Zealand Banking Group did not expect much more easing in the future, saying:

While BI has signalled scope for further policy easing, today’s actions suggest the central bank is keen to use its policy space more cautiously now.

We maintain our view that the current easing cycle is nearing its end and continue to see just one more 25bp rate cut.

But Mohamed Faiz Nagutha, a Singapore-based economist with Bank of America, thought there is plenty of room for additional easing. He predicted additional 75 basis points of easing over the next few months, telling Bloomberg:

There’s nothing to suggest they’re done with rate cuts. Our call remains for a full unwind of the 175 basis points of hikes from last year.

USD/IDR was little changed at 14,091.5 as of 12:34 GMT today.

If you have any questions, comments, or opinions regarding the Indonesian Rupiah, feel free to post them using the commentary form below.

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