Bank Indonesia to cut its 7-day Reverse Repo for a fourth straight time to 5.0% – TD Securities

Ahead of the Bank Indonesia’s (BI) monetary policy decision, up for publishing on Thursday, TD Securities came out with their analysis. The report anticipates fourth straight cut in benchmark 7-day Reverse Repo policy rate to 5.0% with a 25 basis points (bps) reduction into the Deposit Facility and Lending Facility Rates.

Key quotes

“BI's concerns about global trade tensions are unlikely to have been allayed by the recent limited trade deal between the US and China. Exports continue to be pressured, dropping by 5.74% y/y in September, a factor that is feeding into domestic demand. Similarly imports have remained weak while the trade deficit has failed to narrow over recent months.”

“BI's concerns about global trade tensions are unlikely to have been allayed by the recent limited trade deal between the US and China. Exports continue to be pressured, dropping by 5.74% y/y in September, a factor that is feeding into domestic demand. Similarly imports have remained weak while the trade deficit has failed to narrow over recent months.”

“As the weak exports data indicates, manufacturing remains in contraction and investment spending is lacklustre. Unfortunately private consumption has failed to take up the slack despite government social aid programs. In this respect BI hopes that lower policy rates alongside strengthened monetary operations will help to enhance transmission of easier policy.”

“Meanwhile, CPI remains below the midpoint of BI's 3.5% +/- 1% target corridor and looks unthreatening, having fallen by -0.27% m/m in September to come in at 3.39% y/y. Similarly core inflation remains soft, but has crept higher over recent months to 3.32% y/y in September. We expect CPI to move gradually higher over the months ahead, but not enough to threaten further easing.”