Indonesia: Expect BI policy rate cuts – Standard Chartered

Aldian Taloputra, senior economist at Standard Chartered, suggests that there is a room for Bank Indonesia (BI) to reverse some of its previous hikes, while they do not expect any Fed rate hikes in 2019-20.

Key Quotes

“We now see BI cutting the policy rate three times by 25bps each quarter from Q3-2019 to Q1-2020, to 5.25%, versus our previous expectation of one 25bps hike in Q3-2019. Seasonally high USD demand for dividend repatriation, festive-season imports and elections likely warrant a more cautiously biased BI stance in Q2.”

“We expect the current account (C/A) deficit adjustment to be gradual and likely end wider than BI’s estimate of close to 2.5% of GDP in 2019 on relatively solid domestic demand, and subdued external demand and commodity prices. However, improving portfolio inflows should make financing a C/A deficit of c.3% of GDP more manageable.”

“We lower our 2019 average inflation forecast to 3.0% y/y from 3.8% on stabilising food and energy prices.”