Halister News

(Bloomberg) -- Bank Indonesia is likely to ease its monetary policy to help stimulate the economy as a stronger rupiah, coupled with improving trade balance and falling core inflation, provide room to manoeuvre, Bloomberg strategist David Finnerty writes.

• NOTE: Deputy Governor Perry Warjiyo said last week any monetary easing can be in form of rate cut or minimum reserve requirement cut
• Bank Indonesia is forecast to cut its reference rate by 25 bps to 7.00%, according to 17 economists in Bloomberg survey with 11 predicting no change; decision due tomorrow
• BI cut its benchmark rate by 25 bps at its Jan. meeting saying “further easing will take place after rigorous assessments of the domestic and global economy, while maintaining macroeconomic and financial system stability”
• Rupiah has strengthened by 3.3% against USD since that last meeting, making it the second-best performing Asian currency
• That provides room for further easing, as global funds have increased purchases Indonesian government bonds and President Widodo has announced plans to open certain sectors of economy up further to foreign direct investment
• Jan. trade balance was $51m compared to revised deficit of $161m in Dec. reducing worries of flight of capital should rates be cut
• While headline CPI rose in Jan. to 4.14% y/y from 3.35% the core CPI actually fell to to 3.62% y/y in Jan. from 3.95% in Dec., extending its downtrend, signaling that underlying inflation elements are stable
• NOTE: David Finnerty is an FX strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice.