Stock Market in Indonesia
Central Bank stands pat again in May
At its monetary policy meeting on 24–25 May, Bank Indonesia (BI) left the seven-day reverse repo rate unchanged at 5.75% for a fourth consecutive meeting. The decision met market expectations. The Bank also kept the deposit facility rate and the lending facility rates at 5.00% and 6.50%, respectively.
The Bank decided to stand pat due to falling inflation and in order to support the currency. BI deemed previous hikes sufficient to anchor inflation expectations and bring core inflation within its 2.0–4.0% target range in the remainder of 2023 and inflation within the same range in Q3 2023. Meanwhile, the Bank expects the economy to expand 4.5–5.3% this year, underpinned by robust household spending and investment activity, as well as a supportive trade sector.
The Bank’s forward guidance suggests it will keep the current monetary policy setting until core inflation moves back within the target range. Our panel also expects rates to remain close to their current level this year.
Nicholas Mapa, senior economist at ING, commented on the outlook:
“We expect BI to remain on hold for the next few meetings to shore up the IDR before considering a reduction for its key policy rate. In the meantime, we expect the Central bank to continue efforts to stabilise the currency, while also ensuring ample liquidity to support the healthy expansion of bank lending.”
Meanwhile, Enrico Tanuwidjaja, economist at UOB, commented:
“Today’s MPC decision also signaled that BI is not too defensive about possibility of rate cuts. In our view, the key catalysts for the start of the rate-cutting cycle would be a consistently declining inflation towards its target range, a more anchored and persistent stability of the rupiah and an increasing need to support the growth momentum ahead. We keep our view for the rate cut cycle to start in Q1 2024.”
The Bank’s next meeting is scheduled for 21–22 June.
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