MNI Bank Indonesia Preview - March 2023: BI Unchanged, Other Tools To Defend IDR

EXECUTIVE SUMMARY

• Bank Indonesia (BI) is widely expected to leave rates unchanged at 5.75% for the second consecutive month. This cycle it tightened a cumulative 225bp bringing the 7-day reverse repo rate to one of the highest in Asia. However, the previous BI statement and comments from Governor Warjiyo suggest that there isn’t any more tightening in the pipeline and that the central bank has other tools to defend the currency.
• In February underlying inflation eased to close to the mid-point of the target band and the rise in headline is expected to be temporary. BI believes it has done "sufficient" tightening to bring inflation back to the corridor in H2 2023.
• While the IDR has depreciated since the February meeting, it has made some gains in recent days as the USD weakened following banking troubles which also reduced Fed tightening expectations. If this sentiment persists, then the BI should have less to do to support the rupiah but it has said it is committed to currency stability and it has tools, other than the policy rate, to defend it.

For the full piece, see here

BI Preview - March 2023.pdf