Economic Analysis - Neutral Policy Most Likely As Currency Risks Still A Concern - MAR 2018

BMI View: BI held its policy interest rate at 4.25% at its January meeting but eased reserve requirements for banks in an attempt to fuel credit growth. We expect the central bank to remain on hold through end-2018 as it attempts to support growth but guard against inflation and currency risks.

As expected, Bank Indonesia (BI) left its benchmark 7-day Reverse Repo Rate unchanged at 4.25% at its January 17-18 meeting and maintained the Deposit Facility and Lending Facility rates at 3.50% and 5.00%, respectively. However, the central bank decided to loosen its reserve requirements for lenders to increase liquidity and facilitate monetary transmission in a bid to spur credit growth and investment. This followed from BI's aggressive bout of easing which comprised of eight 25bps cuts over the last two years, and the shift in reserve requirement rules from a fixed daily amount to a two-week average from July 2017. We maintain our expectations for BI to stay on hold through end-2018 as it guards against inflation and currency risks, while attempting to support economic growth.

Further Attempt At Accommodative Stance

BI To Remain On Hold
Indonesia - Central Bank Watch
Source: BMI, Bank Indonesia, Bloomberg

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