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Indonesia Monetary Policy March 2020

Indonesia: Bank Indonesia eases again in March despite weak rupiah

At its 18–19 March monetary policy meeting, Bank Indonesia (BI) trimmed the seven-day reverse repo rate to 4.50% from 4.75% and also cut the deposit facility and lending facility rates by 25 basis points to 3.75% and 5.25% respectively.

The Bank’s move was aimed at protecting the economy in the face of a coronavirus-induced downturn, and came following a same-sized cut in February. While low domestic inflation and recent monetary easing by many other central banks provided some room for the cut, the rupiah has weakened considerably over the last month amid a flight to safety, and BI’s loosening could put further pressure on the currency. However, the Bank judged that supporting economic activity was the priority and will aim to stem rupiah depreciation through FX market intervention.

Going forward, Governor Perry Warjiyo said the Bank had room for further rate cuts if required. However, currency weakness could limit the extent of further easing.

Nicholas Mapa, senior economist at ING, commented: “we expect the central bank to continue its intervention to support the currency and to assure ample liquidity in the financial system. We do not think they will be able to cut rates in the near term.”

Analysts at Goldman Sachs were more dovish: “We continue to see significant room for BI easing given decelerating, below-trend growth, downside inflation risks and extremely dovish global central bank policy.”

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