VIEW: ING Expects Around 75bp Of Easing In H2

While Bank Indonesia (BI) kept rates and its message unchanged at its February meeting, ING notes that it is open to easing before year end but after the Fed has cut. BI remained optimistic on global and domestic growth but expects a current account deficit.

• “Although inflation has remained relatively stable of late, BI had recently shifted to a slightly lower inflation target of 1.5-3.5% (down from 2-4%), which could explain the extra caution BI is exercising in retaining policy rates today.”
• “With BI expecting the Fed to cut by roughly 75bp in the second half of the year, we expect BI to follow shortly after and reduce its own policy rate by roughly the same magnitude.”
• “We believe any rate cut by BI will remain contingent on both the Fed initially cutting policy rates and the Indonesian rupiah managing to maintain some level of stability. If we get both, we believe BI can begin to move into easing mode and deliver an added push to growth momentum.”