● Bank Indonesia (BI)keptthe benchmark7-dayreverserepo rate steady at 4.00% (KIBB: no change; consensus: no change) at its ninth Board of Governor meeting this year

- The Deposit Facility rate and Lending Facility ratewere also maintained at 3.25% and 4.75%, respectively.

● BI statement: The decision was consistent with the need to maintain rupiah stability amid low inflation outlook, while providing liquidity via quantitative channel to boost the economic recovery. BI also reaffirmed and introduced the following measures:-

- To maintain the rupiah exchange rate stabilisation policy.

- Strengthening the monetary operations strategy to enhance monetary policy transmission.

- Extending 50 basis points (bps) lower rupiah reserve requirements for banks that lend to SMEs or exportoriented businesses to the end of June 2021, from end December 2020 previously.

- Accelerating the development of money market instruments.

- Expanding Quick Response Indonesia Standard (QRIS) acceptance and accelerate SME development.

● Monetary outlook retained, BI to pause rate cut to maintain rupiah stability amid global financial market uncertainty

- Year-to-date (as of 17 September), the rupiah depreciated by 6.7% against the USD and by far one of the weakest currencies in the region, reflecting heightened global financial market uncertainty brought by the global and domestic risks.

- Escalating geopolitical tensions between the US and China and fears over COVID-19 resurgence could also tilt the rupiah to the downside.

- Nevertheless, we expect the low-interest rates as a result of the total 100 bps cut this year, and its ongoing quantitative easing program coupled with the fiscal stimulus to drive the economic recovery going forward. Therefore, we expect BI to keep its 7-day reverse repo rate steady at 4.00% for the rest of the year.

Source: Kenanga Research - 18 Sept 2020