Economist Enrico Tanuwidjaja at UOB Group assesses the latest decision by the Bank Indonesia (BI).

Key Takeaways

“Bank Indonesia (BI) kept its benchmark policy rate (7-Day Reverse Repo) unchanged at 5.75% in Feb MPC meeting, in line with consensus expectation.”

“BI remains of the view that inflation expectations is anchored while continues to view that rupiah stability is here to stay. Specifically, BI is of the view that headline and core inflation have trended back to BI’s target range of 2-4% faster than expected.”

“Today’s MPC decision marks the end of the current hiking cycle, which was started in Aug 2022. Therefore, we revised our BI rate forecast to remain unchanged at 5.75% for the rest of this year and for BI to potentially embark on an asymmetric rate cut cycle in 1H24. At the current level, BI rate still gives a positive but at much tighter spread historically with our expected terminal rate of the Fed funds rate of 5.25% by 2Q23.”