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INDONESIA: Today’s BI Decision Close Call As USDIDR Rises Further

INDONESIA
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Bank Indonesia’s (BI) December decision is announced later today and analysts are split as to the outcome. 21 of respondents on Bloomberg are expecting rates to be left at 6.0%, while 13 are forecasting a 25bp cut following the first one in September. We expect policy to be unchanged given that BI is currently focusing on FX and financial stability and USDIDR has been trading above 16000 all week (see MNI BI Preview).

  • In the November statement BI said that “the focus of monetary policy is on Rupiah stability in response to increasing geopolitical and global economic uncertainty”. The currency has weakened partly due to the stronger US dollar following Trump’s US election win but there are also concerns about the impact of increased protectionism on Asian economies and the fiscal outlook under new Indonesian President Prabowo.
  • USDIDR is currently around 16118, up 1.9% since the November 20 BI meeting and 0.8% since last Friday. It is also weaker in trade weighted terms with the JP Morgan IDR NEER down 1.0% since the last meeting.
  • The last time USDIDR was above 16000 was in August but it was trending lower then, whereas it is currently trending higher, which is likely to worry BI.
  • BI can focus on FX as it has other tools to support growth apart from rates. It has already been buoying the economy with macroprudential policies to boost lending and jobs. Q3 GDP slowed slightly to 4.9% y/y from 5.0%.
  • While headline inflation is close to the bottom of the 1.5-3.5% BI target band, core is trending gradually higher and BI expects both to stay in the corridor next year.
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Bank Indonesia’s (BI) December decision is announced later today and analysts are split as to the outcome. 21 of respondents on Bloomberg are expecting rates to be left at 6.0%, while 13 are forecasting a 25bp cut following the first one in September. We expect policy to be unchanged given that BI is currently focusing on FX and financial stability and USDIDR has been trading above 16000 all week (see MNI BI Preview).

  • In the November statement BI said that “the focus of monetary policy is on Rupiah stability in response to increasing geopolitical and global economic uncertainty”. The currency has weakened partly due to the stronger US dollar following Trump’s US election win but there are also concerns about the impact of increased protectionism on Asian economies and the fiscal outlook under new Indonesian President Prabowo.
  • USDIDR is currently around 16118, up 1.9% since the November 20 BI meeting and 0.8% since last Friday. It is also weaker in trade weighted terms with the JP Morgan IDR NEER down 1.0% since the last meeting.
  • The last time USDIDR was above 16000 was in August but it was trending lower then, whereas it is currently trending higher, which is likely to worry BI.
  • BI can focus on FX as it has other tools to support growth apart from rates. It has already been buoying the economy with macroprudential policies to boost lending and jobs. Q3 GDP slowed slightly to 4.9% y/y from 5.0%.
  • While headline inflation is close to the bottom of the 1.5-3.5% BI target band, core is trending gradually higher and BI expects both to stay in the corridor next year.