Bank Indonesia (BI) will hold its policy meeting on 14 April and is expected to keep rates on hold.
Although BI has room to cut its official rate further - as inflation is likely to remain benign and the current account (C/A) deficit is set to improve this year - recent pressure on the Indonesian rupiah (IDR) may prevent it from cutting in April.
Standard Chartered sees BI rate to stay at 7.50%, the BI overnight deposit facility (FASBI) rate at 5.50%, and the BI overnight lending facility (repo) rate at 8.00% in April.
The IDR weakened 1.1% in March alone to 13,074 per US dollar (USD), prompting BI to conduct more aggressive FX intervention. Indonesia's FX reserves thus fell from USD 115.5bn in February to USD 111.6bn in March.
"A 25bps BI rate cut to 7.25% in Q2-2015 is expected once the IDR has stabilised. Assuming the US Fed hikes interest rates in September, we forecast BI rate cuts of 25bps each in September and October, to 7.75% by end-2015", says Standard Chartered.
