● Bank Indonesia (BI) yesterdaycut its 7-day repo rate by 25 basis points (bps) to 4.50% in line withmarket and house expectation

- The Deposit Facility rate and Lending Facility rate were also reduced to 3.75% and 5.25%, respectively.

● BI statement: Monetary policy stance remains accommodative to maintain domestic economic growth momentum

- Ensure adequate liquidity and enhance money market efficiency, as well as strengthening a transmission of an accommodative policy mix.

- Enhance coordination with other relevant authorities to maintain the financial system stability and catalyse the bank intermediation function.

- Strengthen the payment system policy, including efforts to combat COVID-19 via non-cash payment transactions and disbursements for government programs.

- BI also announced measures to calm the market and stabilise the Rupiah via intervention policy, including bond-buying in the secondary market and cutting banks' reserve ratio.

● Trimmed growth outlook amid uncertainty over COVID-19

- BI cuts both global and domestic growth projection for the second time this year. BI revised 2020 global growth to 2.5% from 3.0% previously while domestic GDP forecast is revised to 4.2-4.6% from a previous target of 5.0-5.4%.

- As of March 18th, the Rupiah had depreciated by an average of 5.18% compared to the average level inFebruary,makingit the worst performer in Asia alongside the other emerging markets due to the rebalancing of foreign capital flows amids fear of the impact of COVID-19.

- BI has also lowered its loan growth forecast to 6-8% from 9-11% for 2020, a second revision for this year, in line with the revised slower economic growth projection.

● Another rate cut amid escalating COVID-19 cases seems inevitable despite fragile Rupiah

- The house view that BI has ample room to embark on another rate cut given the potential economic fallout following President’s Jokowi admission that the cases of infection in Indonesia has been under reported. While the recent slump of Rupiah may deter BI to cut its policy rate, the low inflationary trend due to weak oil prices and continued weakness in global growth may support for another rate cut. We expect the easing cycle to continue as soon as its next Board of Governor’s meeting in April.

Source: Kenanga Research - 20 Mar 2020