Bank Indonesia expected to lower the BI rate by 25bps

Bank Indonesia's (BI's) next monetary policy meeting is scheduled for 19 May. The central bank is expected to cut the BI rate 25bps to 7.25%, but keep the overnight deposit facility (FASBI) rate unchanged at 5.50%. 

Based on Indonesia's narrowing current account (C/A) deficit in Q1-2015 and the lack of significant inflationary pressures. BI expects the C/A deficit to narrow to 1.6% of nominal GDP in Q1-2015 from 2.8% in Q4-2014, and inflation to remain within BI's target range of 4-6% by year-end. 

Recent comments by government officials also indicate the government's bias towards monetary policy easing to spur real GDP growth (4.7% y/y in Q1-2015, below market consensus). 

A BI policy rate cut will likely be a sharp negative for the Indonesian rupiah (IDR). The previous surprise BI rate cut in February pushed USD-IDR c.4% higher in the subsequent one-month period. 

"We maintain our view of continued IDR weakness in the short term", said Standard Chartered in a report on Friday.