Policy Rate Update: BI Keeps Rates Steady, Citing Global Over Domestic Concerns
Another hold. BI kept its policy rate steady at 5.75%, in line with our and consensus forecasts although 11 out of 38 economists expecting 25bp cut (Exhibit 1). BI reiterated that the decision aligns with efforts to keep inflation within target, stabilize the currency in line with fundamentals, and support economic growth. BI maintains its forecast for a 25bp Fed Funds Rate cut in 2025 and stated that the Fed is in no rush to ease.
Global over domestic concerns. Governor Perry said the latest domestic equity sell-off was more driven by technical factors due to US tariff issues, but Indonesian financial assets remain fundamentally attractive. BI acknowledged portfolio investment shifts from the US to gold and bonds in both EMs and DMs, while equities remain in DMs.
Unchanged macro-outlook. Despite reiterating its GDP growth forecast at 4.7 5.5% for 2025, BI acknowledged that private investment needs to be supported instead of only household consumption in the previous meeting. BI also reiterated its commitment to fully support the implementation of government programs under the Asta Cita (eight missions). BI maintained its current account deficit forecast for this year at 0.5 1.3% of GDP.
More RRR discount on schedule. BI reiterates its support for additional RRR discounts to 5% from current 4% of deposit starting April, suggesting a potential effective RRR of 4% versus the headline rate of 9%. As of the second week of March, BI has distributed RRR discount amounting to IDR292tn or 3.8% of maximum 4% RRR discount, unchanged from Feb, mainly to priority programs such as agriculture, real estate and public housing (Exhibit 2). BI stated that a 1% RRR discount increase will further enhance bank lending to priority sectors, supporting growth and job creation in line with the Asta Cita program.
Liquidity improved further. To support the Rupiah, BI will continue optimizing SRBI to attract foreign inflows (Exhibit 3). Foreign ownership in SRBI increased to IDR232.4tn (26.1% of total) as of 19 Mar from IDR230tn (25.8%) in Feb. The bank s liquid asset-to-deposit ratio increased slightly to 26.3% in Feb, up from 26% in Jan, indicating a modest improvement in liquidity conditions. Loan growth remained stable at 10.3%, unchanged from Jan, below BI s target of 11-13% in 2025 (Exhibit 4). BI also continued purchasing government bonds, totaling IDR70.7tn YTD as of 17 Mar, mainly in the secondary market (vs. IDR32.5tn as of Feb 19).
Update on export proceeds. As BI launched SVBI and SUVBI with a new 12-month tenor (previously 1 6 months) to support longer retention of proceeds starting in Mar, it implies a higher average monthly auction. As of Mar, SVBI auction size monthly average rose to USD464mn from USD331mn in Feb and USD374mn in Jan. The weighted average rate remained stable at 4.59%. However, outstanding SVBI and SUVBI now at USD2.6bn, down from USD3bn in Feb (Exhibit 5). In Mar, the government officially implemented a new rule requiring exporters to keep all export proceeds onshore for one year (see Policy Update: New Export Proceeds Rule Kicked Off in March).
We continue to expect more BI Rate cuts. We reiterate our forecast for a lower BI Rate at 5.25% in 2025, implying a total 50bp rate cut ahead as its stance on pushing growth remains intact. Indeed, Governor Perry reiterated that BI still sees further room for a rate cut, considering inflation, growth and Rupiah movements. Regarding the financial law revision, BI stated that it will clarify BI s mandate to support sustainable economic growth, encompassing stability, economic growth, and job creation in synergy with the government.
Mandiri Sekuritas Research
