● Bank Indonesia (BI) yesterdaymaintained its 7-day repo rate at 4.50% in line withhouse expectation (consensus: 25bps cut)

- The Deposit Facility rate and Lending Facility rate were also maintained at 3.75% and 5.25%, respectively.

- However, it cut the Rupiah Reserve Requirement (RRR) ratio by 200bps for conventional commercial banks and 50bps for Islamic commercial banks, and subsequently increased the Macroprudential Liquidity Buffer.

● BI statement: The decision was to maintain external stability amid heightened global financial market uncertainty and:-

- To strengthen the intensity of the triple intervention policy through the spot and Domestic Non-Deliverable Forward , as well as the purchase of Government Securities (SBN) in the secondary market.

- Continue to strengthen and expand the payment system policy through expansion in non-cash payment transactions of government programs and loosen credit card policy.

- To strengthen the transmission of an accommodative policy mix, BI will also ensure adequate liquidity and to improve the efficiency of the money market.

● Ample space to resume rate cuts, but may await currency stability

- BI sees room for lower interest rates due to mild inflationary pressures and the need to prop up economic growth. BI also slashed its GDP growth forecast to 2.3% from a range of 4.2-4.6%, a second revision for this year.

- While BI has ample room to resume its policy rate cut to bolster growth, we expect the central bank to stay put until Rupiah regains its strength and show signs of stability. Year-to-date, Rupiah has lost 14% in value against the USD amid volatile financial market and the impact of coronavirus pandemic. Nevertheless, the economic stimulus package announced by the government worth IDR436.1 trillion (2.5% of GDP) to combat the pandemic would provide further support to growth going forward.

Source: Kenanga Research - 15 Apr 2020