Bank Indonesia’s policy rate: Dovishness persists

In line with our and market expectations, BI, at its recent Board of Governors’ meeting, maintained its benchmark policy rate at 7.50% while the FASBI and lending facility rates were retained at 5.50% and 8.00%, respectively.

The governors stated that room for policy easing is increasing. As a result, even though the policy rate was unchanged at 7.50%, BI cut the minimum primary reserve requirement from 8.00% to 7.50% to increase the availability of financing for economic growth. However, BI plans to remain vigilant on concerns over market volatility from a possible US Fed rate hike in December 2015.

Additionally, BI mentioned that economic improvement in the US is not moving in line with growth in the EU and Japan. Hence, the ECB and BoJ are likely to continue their monetary easing while persistent weakness in China’s PMI data could trigger further easing by the PBoC. Note that Bloomberg consensus indicates some Asian nations are considering further rate cuts in 2016 (exhibit 1).

Read more, click here