Sell-Side Names See BI On Hold In The Near Term

TD sees BI potentially cutting in Q4 2023. It remains constructive on IDR given BI's view of the currency. Goldmans sees BI on hold for the rest of this year.

TD: "Bank Indonesia left its 7-day reverse repo policy rate unchanged as widely expected at 5.75%. The Bank noted that inflation is falling faster than expected and that it is likely to remain in a 2-4% target range for rest of 2023. Headline inflation eased to 4% in May, back in its 2-4% target while the core gauge decelerated further below 3% at 2.66% y/y. However, we do not expect this to result in a rapid move towards monetary easing. BI remains cognisant of any weakness in IDR and potential further tightening from the Fed, suggesting some caution before embarking on rate cuts. We continue to expect the first cut to come later in Q4 2023. BI noted its IDR stabilisation measures, and we think this includes capping USDIDR around 15,000, which coincides with its 100 dma. We remain constructive on IDR and expect appreciation in the weeks and months ahead. As such we think USDIDR is a sell on rallies."

Goldman Sachs: "The central bank continues to expect GDP growth this year to be around the midpoint of its 4.5%-5.3% forecast range (GSe: 4.9%). With the faster-than-expected return of headline inflation to the upper end of BI's 2%-4% inflation target band in May, BI now expects inflation to remain within the band for the remainder of the year even after taking into account potential impacts from a mild El Nino this year.

On the external sector, BI highlighted downside risks to global growth from slower activity in the US and China but continues to forecast the current account balance to be within a -0.4 to +0.4% of GDP range this year (GSe: -0.2%). The central bank expects IDR to continue to appreciate against the USD driven by the current account surplus and capital inflows.

In the Q&A session, when asked about policy rate cuts, the Governor noted that BI will calibrate the appropriateness of monetary policy settings every month to ensure inflation remains within the band. The Governor stressed that BI also has a mandate to maintain IDR stability, but acknowledged that this could also be achieved through other tools at BI's disposal including FX intervention.

Going forward, we continue to expect Bank Indonesia to keep the policy rate on hold in coming months. The next scheduled BI meeting is on July 24-25."