Bank Indonesia likely to continue to cut policy rate by 50 bps in next two quarters to underpin growth

Bank Indonesia had lowered its key interest rate last week. The central bank cut the 7-day reverse repo rate by 25 basis points to 5 percent, its fourth straight cut. BI has wound down 100 basis points of the 175 basis point hikes that it delivered last year to stem IDR depreciation.

The guidance remains dovish. Bank Indonesia had repeated that the policy mix requires to be accommodative to push growth. There seem to be more room to ease policy rates, with increasing possibility of fiscal stimulus accompanying it as well.

“We continue to expect BI to cut the policy rate by 50bp over the next two quarters to support growth, with fiscal easing likely to supplement growth supportive measures. We expect one more 25bp cut in Q4 (most likely in December), followed by another in Q1 20, which would take the policy rate to 4.50 percent”, stated Barclays in a research report.