Bank Indonesia to stay vigilant on managing IDR volatility, economy to expand around 5 pct in 2019

Bank Indonesia governor Perry Warjiyo repeated the BI’s stance to stay vigilant on managing IDR volatility. Warjiyo stated that they will continue to be “pro-stability and pre-emptive” in 2019. He added that the IDR continues to be undervalued and expects it to strengthen in 2019 due to fewer Fed rate hikes and a lower current account deficit aided by lower oil prices, noted Commerzbank in a research report.

The central bank expects the CAD to narrow to 2.5 percent this year from 2018’s deficit of 3 percent. The economy is likely to grow about 5 percent to 5.4 percent in 2019 from 5.2 percent in 2018. The economy is not much exposed to trade compared to its Asian peers and should be better insulated to slower global trade.

Oil prices are expected to stay as a key factor in determining the direction of IDR. One important political event this year is the presidential election that is to be held in April. This would be a repeat of the presidential election campaign in 2014 with President Jokowi up against former army general Prabowo for the top job. President Jokowi is likely to win for a second and final 5-year term.

“IDR managed to recoup losses towards the end of 2018, thanks largely to the collapse in oil prices. USD-IDR still rose around 6% in 2018 to around 14,460. We expect BI to focus on IDR stability with the 14,200-14,800 range seen near term”, added Commerzbank.