Bank Indonesia likely to ease policy again

The Bank Indonesia is likely to lower its policy rate for the fourth time this year on Thursday after keeping it unchanged during its last meeting, said Societe Generale in a research report.

This is because a relatively stable rupiah and low inflation provides quite a leeway to the central bank to cut rates. Moreover, given the subdued economic activity, there is a window of opportunity to cut rates.

Last month, Indonesia’s headline CPI slowed considerably to 3.33 percent on year-on-year basis. This is the lowest since December 2009. Importantly, food prices continued to be modest in spite of the Ramadan effect, giving additional encouragement to the Indonesian central bank. Inflation is likely to be quite modest in the future, according to Societe Generale. Moreover, a stable currency is a catalyst for easing of policy for Bank Indonesia.

The Indonesian rupiah was depreciating sharply in 2015 and the central bank was not in a position to lower rates in spite of declining oil prices. Even if crude prices have increased considerably in recent times, petrol’s and gasoline’s retail prices are unlikely to increase.