BI Hold the Benchmark Rate Unchanged at 7.5% - Daily Pack 10 April 2014

BI Hold the Benchmark Rate Unchanged at 7.5%

Bank Indonesia (BI) board of governors meeting decided to hold the BI rate unchanged at 7.5% on 8th April 2014. Similarly, the lending facility and the deposit facility rates were also kept unchanged at 7.5% and 5.75%. This was the sixth consecutive month of keeping the key policy rate unchanged, as the rupiah has bounced back and inflation targets of 3.5-4.5% in 2014 and 3.0-4.0% in 2015 will likely be achieved. In addition, Bi views the current account deficit will likely improve to a more healthy level during the year. Meanwhile, BI is monitoring closely recent development in the global situation as well as domestic economy in order to be ahead of the curve in preventing macro instability. Indeed, it has stated that it will put more attention on the development of private external debt after it grew by 12.2% y-o-y in January 2014, faster than +11.2% in December 2013.

In general, BI’s new assessment on the economic development is in line with our expectation. We are of the view that economic growth will likely moderate to 5.4% in 2014 before improving to +5.7% in 2015. The moderation will likely be reflected in a slowing investment due to higher funding costs, while international trade likely to improve modestly. This, however, will likely be mitigated by rising consumption in view of the general election. At the same time, we still holding the inflation forecast of an average of 6.2% in 2014, compared with +7.0% in 2013. We are of the view that BI will hold the benchmark rate stable in 1H 2014, with upside bias in the 2H of the year. (Luthfi Ridho)

FROM TRADING DESK: JCI today is expected to be traded at 4,884.61 – 5,026.55.

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Best regards,

RHB OSK Indonesia Research Institute