MNI Bank Indonesia Preview - August 2023: FX Stability Centre Stage

EXECUTIVE SUMMARY:

• Bank Indonesia (BI) is widely expected to keep rates steady at 5.75% where rates have been since the last hike in January. While inflation has returned to target, which would suggest an imminent easing, the rupiah has weakened. BI has other tools apart from the policy rate to manage FX stability, it is also unlikely to want to put pressure on it by easing policy before the US and others in the Asia region.
• BI has a number of ways it can manage IDR stability including intervention, “operation twist”, and the FX term deposit facility for export earnings. Governor Warjiyo commented that BI doesn’t need to move in line with the Fed even though it expects Fed hikes in both July and September.
• The weaker IDR and BI’s focus on strengthening currency stability are likely to mean that a switch to easing has been postponed to 2024.

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BI Preview - August 2023.pdf