Indonesia: Rates unchanged but cautious stance by Bank Indonesia – ING

Nicholas Mapa, senior economist at ING, notes that the Bank Indonesia (BI) has kept its main policy rate unchanged today in order to further strengthen its external position.

Key Quotes

“Bank Indonesia (BI) opted to keep its 7-day reverse repo rate at 6.0%, unchanged for a fifth time, as the rupiah has been under less pressure with global sentiment much improved compared to the 3Q of 2018. Although down year-to-date, the IDR has recovered significantly from the lows seen in 2018, up roughly 7% from the height of the emerging market rout of last year.”

“The reversal in flows has helped regional central banks shore up reserves after drawing from their stock pile at the height of the 2018 turbulence. Indonesia has seen reserves rise roughly $10 billion in the last few months with gross international reserves now at $124.5 billion.”

“Governor Perry Warjiyo has shot down expectations of a reversal in BI's policy stance, citing external risks for the need to retain the attractiveness of Indonesian financial assets.”

“If the IDR remains stable and the central bank is able to build up reserves further, we do expect a possible reversal in the current stance sometime in the 3Q, as long as the Federal Reserve remains on hold until then.”