USD/IDR: Rupiah holds near six-week low on Bank Indonesia’s expected rate cut

At its February monetary policy meeting on Thursday, Indonesia’s central bank, Bank Indonesia (BI), cut its 7-day reverse repo rate by 25bps to 4.75%,  |  20/02/2020 07:27

At its February monetary policy meeting on Thursday, Indonesia’s central bank, Bank Indonesia (BI), cut its 7-day reverse repo rate by 25bps to 4.75%, in line with expectations. The central bank adjusted its policy after having stood pat for three straight months.

The latest Reuters poll showed that 16 of 28 economists expected BI to cut the benchmark 7-day reverse repurchase rate by 25 basis points (bps) to 4.75%. 

The central bank Governor Warjiyo noted that the central bank conducted a thorough assessment of the effect of a virus outbreak in China on the domestic economy.

Additional comments:

To take pre-emptive measure against effect of coronavirus outbreak.

Global economic recovery disrupted by coronavirus outbreak.

Coronavirus effect on economy will be short.

Domestic GDP growth must be supported.

Cuts 2020 economic growth to 5.0-5.4%.

2021 economic growth seen at 5.2%-5.6%.

Revision to GDP growth outlook mainly because of coronavirus effect on global economy.

Indonesia GDP affected by virus outbreak through tourism, trade and investment.

Keeps target to narrow 2020 and 2021 current account deficit at range of 2.5%-3% of GDP.

Rupiah to remain stable reflecting fundamentals.

The annualized inflation at end-2020 seen within 2%-4% target range.

Decision in line with efforts to anchor inflation, stability, support growth amid coronavirus outbreak.

Relaxes rules on macroprudential intermediation ratio for overseas branches of Indonesian banks.

Keeps strategy to maintain adequate liquidity, macroprudential rules accommodative.

There is probability us fed will cut interest rates by 25 bps in sept, but such move is not in our baseline.

FX implications:

On the Indonesian central bank’s rate cut outcome, the Indonesian Rupiah (IDR) remains on the back foot against its American counterpart, keeping the USD/IDR pair close to a six-week low of 13,777.50 reached earlier today. At the press time, the spot trades +0.65% at 13,765.

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