 BI
surprised markets late yesterday afternoon by cutting its reference rate by
25bp to 7.50%. Consensus was for the central bank to stand pat on policy. At
the same time, deposit facility rate or FASBI was also trimmed by 25bp to
5.50% but maintained the lending facility rate at 8.0%.
This
surprising move by BI suggested that the balance of risk is now on growth
rather than the current account deficit (CAD). The economy is expected to
expand sub-6% in 2015 with the BI now projecting growth of 5.4-5.8% in 2015.
On the other hand, BI now expects the CAD to come in 3-3.1% in 2015.
Inflation has so far been manageable, allowing some room for the BI to move.
The
reaction of the market on the USD/IDR spot has been muted so far and this
could this could be due some Asian markets having closed or will be closing
for the Lunar New Year holidays. A bigger move is possible when most Asian
markets re-open on Mon with the pair possibly overshooting our recently
revised end-1Q 2015 projection of 12800 and heading towards 12900, our
recently end-2Q15 forecast. We remain watchful over the currency pairing but
for now, we maintain our current forecast of 12800, 12900, 13100 and 12900
for end-1Q15, -2Q15, -3Q15 and end-2015.
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