FXStreet (Delhi) – Research Team at Nomura, suggest that, Bank Indonesia (BI) kept its key policy rates unchanged yesterday, in line with expectations with the policy rate at 7.5%, the lending rate at 8.0% and the deposit (FASBI) rate at 5.5% and has moved even a step further and turned outright dovish.
Key Quotes
“The statements from both the policy statement and the press conference suggest to us that BI has clearly opened the door to monetary easing in the near term. The policy statement noted that there is “easing pressure on macroeconomic stability” and hence it “sees room for monetary loosening.”
“In addition, comments made in the press briefing (as quoted by Bloomberg) were more explicit. These include BI saying it “won’t rule out [a] rate cut”, though it “hasn’t decided on [the] timing for policy easing.” BI went further in highlighting the variables it will watch, saying it will “take into account inflation, [the] current account, delay[s] in [the] Fed[‘s] plan to raise rates and October capital inflows in deciding on policy easing.” It said it will “prioritize domestic factors”, specifying a time frame for capital inflows, i.e. October, suggesting to us it could consider a rate cut as early as the next meeting in November.”
“Yet all these dovish comments were made despite BI maintaining that Q3 GDP growth would improve to 4.9% versus 4.7% in Q2. BI kept its 2015 GDP growth forecast of 4.7- 5.1%, adding that it expected the government stimulus package would keep growth supported. Meanwhile, BI sees “potential disinflation” in October and on the current account deficit, BI reduced its 2015 forecast to 2% of GDP from “less than 2.3%” previously (2014:-3.1%). Finally, BI attributed the recent strengthening of the currency to the Fed and is seeing “room for further gains.”
“As a result, we think risks are rising that BI could ease this year, earlier than our current forecast of Q1 2016.”
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