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June 16, 2021 05:15 GMT
MNI BI Preview - June 2021: Bank Indonesia To Stay On Hold
Executive Summary:
- Virtually all sell-side analysts expect Bank Indonesia to leave benchmark interest rate unchanged.
- Inflation remains subdued and new Covid-19 cases spread, but promising high-frequency data signals, weak policy transmission and wobbly rupiah will discourage adding stimulus.
Indonesia has just tightened mobility restrictions and imposed stricter capacity limits, but there have been green shoots in the grand scheme of things. Faced with this situation, Bank Indonesia are widely expected to leave its 7-Day Reverse Repo Rate unchanged at its lowest point on record, focusing on the transmission of stimulus delivered so far.
From the policy mandate perspective, price growth remains subdued, with the latest weekly survey ran by the central bank estimating that headline consumer price growth will slow to +1.40 Y/Y this month from +1.68% recorded in the prior month. This means that CPI is expected to remain below Bank Indonesia's target range of +2.0%-4.0%, with the core measure also struggling to pick up momentum. Meanwhile, the rupiah has firmed since the previous monetary policy meeting, but it remains softer on the year, losing around 1.4% against the USD in 2021.
However, higher-frequency indicators have been more promising. Markit Manufacturing PMI registered its best levels since the series began in May, with new orders, output and purchasing sub-indices reaching similarly spectacular levels. Sentiment gauges have also continued to improve, with the official consumer confidence index rising further towards pre-pandemic levels.
While economic recovery has been gathering steam, the broader picture is still fraught with risks of recurring waves of Covid-19. The benchmark policy rate already sits at a record low, whereas below-target inflation and generally softer rupiah pull the MPC in opposite directions. In fact, Governor Warjiyo flagged potential for another stand-pat meeting during the last press conference, as he noted that "BI will maintain the current interest rate until there are signs of accelerating inflation". This scenario, as we already know, has not yet materialised.
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Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
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