Monetary Easing To Continue Apace

In line with our expectations (see February 2 2009, Rupiah Slide Underscores Its Vulnerability), Bank Indonesia (BI) slashed its official lending rate by 50bps on February 4 to 8.25%. The move brings the aggregate of cuts since December to 125bps, which it still somewhat conservative by regional standards. Nevertheless, it reinforces our view that BI's priority has shifted decisively in favour of growth. To this end, we believe the bank will continue cutting rates as local price pressures abate, and see the trough in the current easing cycle at 7.00%.

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