● Bank Indonesia (BI) yesterday kept its 7-day repo rate unchanged for the third straight month (consensus: no change; KIBB: no change)

- Both the Deposit Facility rate and Lending Facility rate remained at 4.25% and 5.75%, respectively.

● BI statement: Ensuring adequate liquidity and accommodative measures to preserve economic stability and boost domestic economic growth

- Monetary operations strategy remains oriented towards maintaining sufficient liquidity and supporting the transmission of an accommodative policy mix.

- The macro-prudential policy remains accommodative while strengthening the payment system policy and financial market deepening.

- BI will continue to strengthen its coordination efforts with the Government and other relevant authorities to maintain economic stability, boosting domestic demand, increase exports and tourism, as well as attracting foreign capital inflows, including Foreign Direct Investment (FDI).

● Upbeat on the domestic and global economic outlook, but maintain an accommodative policy stance

- BI foresee improved external resilience primarily contributed by an influx of foreign capital inflows (4Q19: USD6.4b; 3Q19: USD4.9b), manageable current account deficit on the back of a sharp decrease in the trade deficit as well as increased reserve assets.

- Rupiah gained 1.74% as of 22 January, and BI expects rupiah stability to remain in line with the currency’s fundamental value and maintained market mechanisms.

● BI has ample room to resume the easing cycle to bolster growth in 2020

- Lower commodity prices as well as partly due to structural improvement and policy synergy between the government agencies have reinforced price stability. Meanwhile, the Rupiah is expected to gain from easing trade tension and sustain capital inflows which may support the case of more easing.

- We maintain our house forecast that the central bank may slash 25 basis points (bps) in 1Q20 amid slowing loan growth and a cautiously weak GDP growth outlook. Overall, we foresee BI to cut interest rates by up to 50bps in 2020.

Source: Kenanga Research - 24 Jan 2020