Bank Indonesia likely to stand pat

The Indonesian central bank, Bank Indonesia, is expected to stand pat for the second consecutive time tomorrow during its meeting. According to a Societe Generale research report, the central bank is likely to keep its policy on hold for the second straight time since the adoption of the 7-day Reverse Repo Rate (RRR) as the new policy rate.

In spite of much lower headline CPI inflation and a weak credit growth, the Indonesia’s central bank would probably concentrate on hastening the pace of monetary policy transmission for enhanced impact rather than going for a rate reduction now, stated Societe Generale.

The nation’s headline inflation in August came in at 2.8 percent year-on-year, the lowest ever according to the new inflation series and was lower than the lower bound of the accepted inflation corridor of 4 percent, plus or minus 1 percent.

As the inflation has persistently stayed weak for some time now, another low headline print is not expected to trigger a rate cut as the BI is concerned regarding the extremely slow transmission pace of its monetary policy actions so far.

Bank Indonesia has so far lowered its reference rate by 100 basis points in 2016 that has led to a slightly more than 50bp cut in lending rates while the lending rate on consumption loans has barely budged, noted Societe Generale. In any case, the Indonesian central bank eased in a major way, although by stealth, last month when they lowered the repo rate by 100 basis points even as they kept the 7-day RRR on hold.