• Bank Indonesia (BI) keptthe benchmark 7-dayreverse repo rate unchanged at 3.50% at its 3rd Board of Governor meeting this yearon Mar 18. The decision was in line with house and market expectation
  • The Deposit Facility rate and Lending Facility rate were also retained at 2.75% and 4.25%, respectively.
• BI statement: The decision is in line with the need to maintain the stability of the rupiah amid increasing global financial markets uncertainty and a low inflation outlook. BI also pledge to:
  • Optimise its macroprudential policies, accelerate money market deepening, support international policies, and digitise the payment system.
  • Stabilise the rupiah through "triple intervention", a term referring to intervention in the domestic nondeliverable forward (DNDF) and spot markets as well as buying government bonds (SBN) on the secondary market.
• Growth to gradually pick up, but inflation remains subdued
  • GDP: BI maintains growth forecast of 4.3-5.3% range (2020: -2.07%). Growth to be driven by global economic recovery, vaccine rollout, and national policy synergies.
  • Inflation: BI expects inflation to remain low within 2.0-4.0% target band due to weak demand and adequate supply.
• Increasing global financial market uncertainty to limit room for further rate cut
  • Year-to-date, the rupiah depreciated by 2.62% against the greenback, weighed mainly by the global financial market volatility fueled by rising US Treasury yields. The local currency is expected to remain pressured amid the reflation trade theme driven by the global rollout of the COVID-19 vaccination campaign as well as the impact of US stimulus.
  • While we believe BI has ample room to resume its monetary easing to bolster growth and aid economic recovery, we maintain our outlook that BI would likely hold rates steady in the coming months.

Source: Kenanga Research - 19 Mar 2021