Indonesia: External risks to keep BI on hold – TDS

Mitul Kotecha, senior emerging markets strategist at TD Securities, suggests that after the Bank Indonesia left policy rates unchanged at its meeting on 25th April, citing efforts to strengthen external stability, they are expecting the same at the meeting on Thu 16 May, with BI likely to sound cautious.

Key Quotes

“We had thought that BI would open the door to a rate cut as early as May but there was no such forward guidance at the last meeting. Given the deterioration in global risk appetite and weakening in IDR since, a rate cut is unlikely.”

“We expect BI to highlight greater financial market uncertainty and risks to global and Indonesian growth in the wake of the intensification of US-China trade tensions. Indeed partly as a consequence of such risks IDR has weakened by close to 3% since mid-April, while Indonesian bond yields have moved around 46bp higher over the same period as foreign inflows have dried up. BI is unlikely to risk further FX pressure by cutting rates now.”

“We think BI may yet ease policy in coming months to help stimulate the economy.”

“An unchanged outcome is unlikely to impact IDR, with the currency buffeted by rising external pressures. We don't expect USDIDR to move much higher, with 14,500 likely to be an important level of resistance.”