19 Jun 2015
Bank of Indonesia stays on hold, might ease in Q4 15 – Nomura
FXStreet (Barcelona) - Reviewing the Bank of Indonesia’s decision to maintain rates steady, Research Analysts at Nomura, predict that inflation would fall in BI’s target range around Q4 which would lead the central bank to cut rates by 25bps.
Key Quotes
“In line with expectations, Bank Indonesia (BI) left the policy, deposit (FASBI) and lending rates unchanged at 7.5%, 5.5% and 8.0%, respectively.”
“The statements from the press conference, as reported by Bloomberg, suggest to us that BI has continued to view the current policy rate as consistent with its inflation target. BI pegged the Q2 current account deficit (CAD) at 2.5% of GDP, wider than the 1.8% of GDP in Q1. More importantly, it highlighted that it “will be vigilant on inflationary risks” especially from oil and FX.”
“BI lowered its average 2015 GDP growth forecast range to 5.0-5.4% from 5.4-5.8% previously (Nomura; 4.8%) in early June and highlighted that the reduction was largely due to its assessment of weaker external demand. On the domestic front, it noted that growth hinged on the implementation of government infrastructure projects.”
“Nonetheless, BI expects growth to pick up versus Q1, even as credit growth for April weakened further to 10.4% y-o-y from 11.3% in March. BI believes that loan growth will increase in coming months “on macroprudential moves”, such as revisions to the loan to deposit-linked reserve requirement regulation, loan-to-value policy for mortgage loans and minimum down payments on automotive loans. In terms of the timing, BI stated that the loan-to-value rule could be issued as early as next week.”
“Therefore, we reiterate our view that BI will keep the policy rate on hold in coming months before cutting by 25bp in Q4, which is when we expect headline inflation to fall back within BI’s 3-5% target.”
Key Quotes
“In line with expectations, Bank Indonesia (BI) left the policy, deposit (FASBI) and lending rates unchanged at 7.5%, 5.5% and 8.0%, respectively.”
“The statements from the press conference, as reported by Bloomberg, suggest to us that BI has continued to view the current policy rate as consistent with its inflation target. BI pegged the Q2 current account deficit (CAD) at 2.5% of GDP, wider than the 1.8% of GDP in Q1. More importantly, it highlighted that it “will be vigilant on inflationary risks” especially from oil and FX.”
“BI lowered its average 2015 GDP growth forecast range to 5.0-5.4% from 5.4-5.8% previously (Nomura; 4.8%) in early June and highlighted that the reduction was largely due to its assessment of weaker external demand. On the domestic front, it noted that growth hinged on the implementation of government infrastructure projects.”
“Nonetheless, BI expects growth to pick up versus Q1, even as credit growth for April weakened further to 10.4% y-o-y from 11.3% in March. BI believes that loan growth will increase in coming months “on macroprudential moves”, such as revisions to the loan to deposit-linked reserve requirement regulation, loan-to-value policy for mortgage loans and minimum down payments on automotive loans. In terms of the timing, BI stated that the loan-to-value rule could be issued as early as next week.”
“Therefore, we reiterate our view that BI will keep the policy rate on hold in coming months before cutting by 25bp in Q4, which is when we expect headline inflation to fall back within BI’s 3-5% target.”