● Bank Indonesia (BI) keptthe benchmark7-day reverse repo rate unchanged at 3.50%for the sixthconsecutivemeeting at its 8th Board of Governor meeting this year on August 19. The decision was in line with house and market expectation

• The Deposit Facility and Lending Facility rates were also kept at 2.75% and 4.25%, respectively.
• BI statement:The decision is in line with the need to maintain exchange rate and financial system stability amid low inflation outlook and the effort to support economic growth.

● Maintain domestic and global growth outlook

• GDP: BI retain its forecast for the global economy to grow at 5.8% despite a rising threat of COVID-19 Delta variant. This is mainly due to robust economic recovery in the US, EU and China and solid global trade activities. On the domestic front, BI also retain the 2021 GDP forecast at 3.5%-4.3% on the expectation that growth will be supported by the relaxation of movement restrictions, acceleration of vaccinations, continued policy stimulus, and expansion in export activities.
• Inflation: BI retained its inflation forecast within the 2.0%-4.0% target band for 2021 and 2022 amid limited domestic demand and adequate supply.
• Rupiah: As of August 18, the rupiah depreciated by 2.3% against the USD compared to the end of 2020 level, relatively lower compared to other regional peers such as the Philippine Peso (-5.0%), Malaysian Ringgit (-5.4%) and Thailand Baht (-11.3%).

● Monetary policy outlook retain, no change expected until 2022

• As of August 18, the number of confirmed COVID-19 cases has risen by 15,768, with total cases registered at 3,908,247. Though the situation has improved compared to its peak of 56,757 cases in mid-July, the extended semi-lockdown policy known as PPKM to August 23 is expected to weigh on growth recovery going forward.
• While we continue to believe that BI has ample room to resume monetary easing to bolster growth and aid economic recovery, the possibility of another rate cut may likely be slim as we believe BI’s current policy is skewed towards ensuring currency stability amid heightened global financial instability brought by the US Fed policy shift.

Source: Kenanga Research - 20 Aug 2021