Bank Indonesia Preview – February 2021: Leaning Dovish

MNI Point of View: Leaning Dovish

• Bank Indonesia's monetary policy meeting got underway and policymakers are deliberating whether to resume cutting the benchmark interest rate. Indonesia's top economic officials appeared to be setting the scene for such a move in their recent speeches, as they took note of a deteriorating growth outlook. There is a good chance that underlying economic conditions will prompt policymakers to lean to the dovish side this week.
• The latest economic data painted a rather worrying picture of the Indonesian economy. CPI unexpectedly slowed to +1.55% Y/Y in January, moving further away from the central bank's target of +2.0-4.0%, while Q4 saw GDP remain in contraction.
• These two key data signals came out just days ahead of a parliamentary testimony from BI Governor Warjiyo who lamented "too low" inflation and expressed a sense of concern with sluggish economic recovery. He noted that policymakers will take rupiah stability and the impact of prior rate cuts into account when they make their decision on February 18 and signalled that "all policy instruments aim to accelerate economic recovery."
• The majority of analysts in both Bloomberg and Reuters polls expect Bank Indonesia to deliver its first rate cut this year and we concur that the odds of Indonesian policymakers acting accordingly have increased since the last meeting. While there is an outside chance that Governor Warjiyo & Co will want to postpone further interest rate reductions until there is more clarity on the vaccine rollout, they have good reasons to take action now and deliver monetary stimulus.

Please use the following link to access the full preview:

MNI BI Preview February 2021.pdf