• Bank Indonesia (BI) lowered its policy rate by 25bps to 3.75% in its November monetary policy meeting
• Bangko Sentral ng Pilipinas (BSP) lowered its policy rate by 25 bps to a record low of 2.0% in its November MPC meeting
• However, Bank of Thailand (BOT) kept its policy rate unchanged at 0.5% in its latest MPC meeting

Bank Indonesia (BI) may cut its policy rate further due to weak US$

Bank Indonesia (BI) lowered its policy rate by 25bps to 3.75% in the latest November monetary policy meeting (MPC), after maintaining its key interest rate unchanged since July 2020. This was its fifth rate cut so far this year. BI has lowered its policy rate by a cumulative total of 125bps this year. The lending and deposit facility rates were also reduced by 25bps to 4.5% and 3.0%, respectively. BI guided that its latest policy rate cut was to stimulate domestic demand and support economic activity that has been impacted by the Covid-19 outbreak. In 3Q20, the country’s real GDP growth contracted by 3.5% yoy, which also marked its first recession for the first time since the Asian financial crisis. BI guided that it will continue with its government bonds purchase to support the economy as well as assisting the government spending on its Covid-19 response. Besides that, BI emphasised that it will continue to monitor the global economy and financial markets as well as the development of Covid-19 and its impact on the domestic economy. With regional currencies (including Rupiah) appreciating against a weaker US$ recently, we believe there is possibility for BI to lower policy rates further to support growth, especially if recovery is being dragged by continued rise in Covid-19 cases in Indonesia.

Similarly, after maintaining its policy rate for two consecutive meetings, Bangko Sentral ng Pilipinas (BSP) lowered its key policy rate by 25 bps to a record low of 2.0% in its November monetary policy meeting. BSP noted that there is enough policy space for a reduction in its policy rate in order to boost market sentiment and bolster the country’s economic recovery due to increased downside risks. So far, BSP has lowered its policy rate by a total of 200bps since early this year. Philippines’ economy was in recession for its third consecutive quarter despite the stimulus package worth 165.5bn pesos (which was signed into law to further support the economy in September). Going forward, with uncertainty around the pandemic and the risk of another wave of Covid-19 cases impacting on domestic economy, we anticipate BSP to likely cut its leave policy rate further from the current level of 2% in early 2021.

Separately, Bank of Thailand (BOT) kept its policy rate unchanged at a low of 0.5% in the latest MPC meeting, but guided that it would stand ready to use additional appropriate monetary policy tools if necessary. The BOT has cut its policy rate three times this year with a total of 75 basis points since early 2020. Thailand’s real GDP growth contracted by -6.4%, albeit smaller decline than -12.1% in 2Q20. The improvement was helped by the series of stimulus measures implemented and eased movement restrictions to control the outbreak of Covid-19. The Government revised its full year 2020 GDP forecast to -6% from an earlier estimate of -7.3% to -7.8%.

Source: Affin Hwang Research - 20 Nov 2020