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Bank Indonesia (BI) cut its policy rate by 25bp to 7.25% on 14 January, as widely expected. Earlier markets expected BI to cut in February, given the governor's recent concern over financial volatility. But renewed downward pressure on oil prices was likely a tipping point for bringing forward the easing.
Growth stimulus and currency stability concerns had characterized BI policy since October 2015. The USD3.5bn sovereign debt issue in December and almost USD10bn of commitments from Chinese investors since September 2015 for infrastructure projects have put to rest some of the concerns. The governor's dovish comments suggest a second cut in the easing cycle is likely soon.
"We expect another rate cut in March. With inflation stabilizing lower in 2016 at 4.2%, we also see scope for further monetary easing beyond March," notes Barclays in a research note.
