Low inflation and slower growth are the reasons cited by strategists at TD Securities to forecast a rate cut of 25 basis points in Indonesia. This measure is not expected to have an impact on the Indonesian currency. USD/IDR trades at 13,700.
“We expect Bank Indonesia to cut policy rates, likely reducing its 7d reverse repo by 25bps to 4.75% at its meeting on 20 February. Very low inflation (CPI dropped more than expected in Jan to 2.68% y/y), a favourable inflation outlook and softening growth, gives scope to lower rates.”
“We see little reason to stay on hold, especially given the further risks to growth from COVID-19.”
“Since the last BI meeting IDR has softened slightly as portfolio inflows have slowed, but the weakness has been limited, and far smaller than its Asian FX peers. IDR offers an attractive relative value proposition.”
“We don't think the slight recent weakness in IDR will stand in the way of a rate cut at this meeting and expect IDR to face only limited pressure in the wake of a rate cut.”
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