Bank Indonesia (BI)keptthe benchmark7-dayreverserepo rateunchanged at 3.50% for the fourth straight meetingat its6thBoard of Governor meeting this yearonJune17. 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 expected weak inflationary pressure and to maintain the rupiah's stability and effort tostrengthenthe economic recovery. BI also embark on the following policy measures:
Extending the policy of lower late payment penalties on credit cards at 1.0% of the outstanding balance or a maximum of IDR100,000 until December 31 to boost credit card usage as a private consumption buffer to support the economic recovery.
Domestic growth points to further improvement
GDP: Various domestic leading indicators in May demonstrated positive momentum partly due to seasonal spike in demand associated with the festive season. Nonetheless, BI expect global economic recovery, faster vaccination rollout and closer policy synergy to drive domestic economic recovery in line with its GDP projection of 4.1-5.1% (2020: -2.07%).
Inflation:Inflationary pressure build-up on rising demand driven by seasonal demand in conjunction with National Religious Holidays (HKBN). Nonetheless, inflation remains under control, and BI maintained its inflation forecast within the 2.0-4.0% target band for this year.
Rupiah:As of June 16, the rupiah depreciated by 1.3% on a year-to-date basis while it strengthened by 0.49% on average compared to May 2021. BI pledged to continue to strengthen measures to stabilise the rupiah.
No change in policy rate expected until 2022
We reiterate our view that BI will likely maintain its policy rate unchanged for the rest of the year and remain an accommodative stance as it pledged to support economic recovery besides a low inflation outlook.
Nonetheless, we foresee the rupiah will be pressured by the domestic surge of COVID-19 cases and the US Fed signal on policy shift. Hence, it is unlikely for BI to cut the interest rate further though we believe it has ample room to resume monetary easing to bolster growth.
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