Sell-side Views Post BI Yesterday

Sell-side views suggest no near term BI cut, but risks are building for the second half of the year. Much will depend on external developments.

Goldman Sachs: "In the Q&A session, the Governor noted that as inflation has eased, the central bank's focus has shifted to managing FX volatility with its triple intervention strategy amid global financial uncertainty during US debt ceiling discussions. Going forward, the central bank continues to expect IDR to strengthen this year given the favorable current account dynamics (BI: -0.4% to 0.4% of GDP in 2023; GS: -0.2%) and potential capital inflows.

With the Fed tightening cycle likely over, declining headline inflation and the more stable IDR, we continue to expect Bank Indonesia to keep policy rates on hold in coming months. The next scheduled BI meeting is on June 21-22."
TD: "BI sounded less upbeat over investment and consumption in the economy and is watching bank lending growth closely. This may suggest some scope to cut the policy rate if economic growth suffers in the latter part of the year. However, in the near-term, cuts are unlikely as BI is concerned about IDR stability amidst uncertainty in the financial markets. Thus, the Bank reiterated that it will continue their Operation Twist operations (selling short-term notes) and its FX interventions which should keep IDR well supported. We still remain bullish on IDR given positive real yields across the curve which should support bond inflows and give a boost to IDR. USDIDR is nearing the 15,000 psychological level and we will look for better opportunities to go short USDIDR against this volatile market backdrop."

J.P. Morgan: " Nuanced shift in risk bias around growth to neutral from upside – In the accompanying statement, Bank Indonesia maintained its current account balance forecast of between 0.4 and -0.4% of GDP (J.P. Morgan: 0.4% of GDP) and said it expects that the 2023 balance of payments will record a surplus reflecting capital flows. BI also expects that headline inflation will fall back into the 2-4%oya target range likely earlier than expected with J.P. Morgan penciling in a return to the range by June compared to BI’s expectation of August.

In prior statements, Bank Indonesia had highlighted upside risks to the growth forecast range of 4.5-5.3%oya (J.P. Morgan: 4.2%oya). References to upside growth were conspicuously absent today, which resonates with the recent tone of the high-frequency data.

We concur with these forecasts and, cognizant of the shifting risks around growth, would suggest that the BI rate will remain at 5.75% throughout this year, with risks tilted towards easing."