Bank Indonesia (BI) is expected to keep its key policy rate unchanged at 4.75 percent at its monetary policy meeting scheduled to be held this week, highlighting GDP growth risks that stem from lingering global uncertainties. The central bank is also likely to reiterate the need to remain vigilant of financial market volatility.

In the previous meeting, the BI noted that non-construction investment growth is set to accelerate in the first quarter of this year, while household consumption growth is also seen to have improved further. Data has been less than convincing, however, especially on the investment front.

While the central bank has trimmed its key interest rate by a total of 150 basis points last year, the rupiah has actually strengthened on nominal effective exchange rate (NEER) basis. Arguably, a stable or stronger rupiah is a boost to growth momentum, given the positive impact it has on domestic investment.

"We expect 7 additional rate hikes from the Federal Reserve by end-2018, compared to just 3 currently priced in the markets. The fact that reserves accumulation has been persistent this year suggests that BI is shoring up its defenses to prep against the possibility of seeing sudden capital outflows," DBS Group Research commented in its latest research report.