- Local currency is up more than 5%, Asia’s top gainer so far
- Exports fall in March in another sign of dim external outlook
According to Bloomberg article published on April 18, 2023, Indonesia’s central bank will likely maintain its key rate steady for a third straight meeting in what some analysts see as a signal of a lengthy pause as price pressures ease and the currency strengthens.
All 30 economists in a Bloomberg survey expect Bank Indonesia on Tuesday to maintain its seven-day reverse repurchase rate at 5.75%. That’s the first time the poll returned a unanimous reading since BI paused in February after 225 basis points of tightening over six months. HSBC Holdings Plc and Australia & New Zealand Banking Group expect that Indonesia is already done with its tightening cycle.
With domestic headline inflation on course for sustained deceleration and the rupiah up more than 5% against the dollar to become Asia’s best performer this year, the central bank has room to stand pat as more and more peers globally withhold their firepower. The Monetary Authority of Singapore was the latest to halt its policy tightening amid a bleak global outlook and ebbing inflation.
“There is little pressure for rate hikes from the external front too, with diminished odds of a very hawkish US Federal Reserve and a strengthening in the IDR in recent weeks,” Krystal Tan, an economist at ANZ Bank, wrote in a note. “There is no urgency for an easing pivot either, with banking sector liquidity ample, loan growth still robust and consumer sentiment holding up well.”
Here’s what to watch at Governor Perry Warjiyo’s briefing at 2 p.m. Jakarta:
Currency, Inflation
The rupiah was off to a strong start this year and some analysts are forecasting more gains as foreign investors pile into government bonds. Global funds snapped up $4 billion of Indonesian debt so far this year.
The country also saw its foreign reserves surge in March to the most since late 2021, “thanks to a more gradual decline in commodity prices and the implementation of FX deposit instrument for exporters,” said Faisal Rachman, an economist at PT Bank Mandiri in Jakarta, who forecasts the stockpile to rise to as much as $155 billion by the year-end.
Meanwhile, core inflation which is BI’s preferred gauge, has cooled below 3% for the first time in eight months.
While prices could pick up during this month’s end of Ramadan festivities “base effects will lead inflation back into the target range by mid-year,” said DBS Bank Ltd.’s Radhika Rao. She doesn’t foresee BI shifting to an easing stance on expectations of a sustained Fed hike.
Finance Minister Sri Mulyani Indrawati is optimistic Southeast Asia’s biggest economy can maintain economic growth at around 5% despite weakening exports, with the latest data showing a contraction for the first time since 2020.
For Societe Generale economist Kunal Kundu, Indonesia “now has the luxury to adopt an accommodative monetary policy stance.” He considers the 5% economic growth to be “well below what the country needs.”
