Bank Indonesia (BI) kept policy rates unchanged at 3.5%, matching the market consensus, as BI appears confident that fiscal measures can contain price pressures. In the view of economists at ING, the Indonesian rupiah is set to suffer some pressure as BI holds out on rate hikes for now.
BI enacts dovish pause
“We had expected BI to keep policy rates unchanged at today’s meeting, however, we believed that Governor Warjiyo would at least set the table for a June rate hike. Warjiyo did the exact opposite by pledging sustained support for the economic recovery and citing IDR stability.”
“It appears the central bank remains confident that inflation can be contained by subsidies rolled out by fiscal authorities and that IDR would remain supported by a healthy trade surplus in the near term. As such, it appears BI is in no hurry to hike policy rates in the near term unless we see a substantial pickup in core inflation in the coming months and or heightened weakness from IDR.”
“With BI enacting a dovish pause, expect IDR to come under some pressure as BI opts not to join the rate hike camp for now.”