Indonesia enters a rate cutting cycle - ANZ

ANZ analysts point out that they are one of seven, out of 35 research houses, that are expecting a 25bp rate cut at Bank Indonesia's (BI) meeting today.

Key Quotes

“While today's decision will be a close call, in our view, the question to address is not whether BI would cut rates but how deep the rate cutting cycle would be.”

“We see the risks around deposit and lending rates as skewed to the upside, all else equal. Funding composition has slowly changed in favour of market-based financing (now at 13% of customer deposits) and interbank liquidity has tightened.”

“The economy will benefit from looser monetary policy. For consideration, our financial conditions index remains in a slightly tight territory and we show that strong bank lending growth in 2018 has come on the back of refinancing requirements, rather than driven by stronger demand.”

“Overall, BI's targeted tightening in 2018 has left a few undesirable effects on the growth of banks deposit and the onshore corporate bond market. In the medium term, the trends could risk inhibiting financial intermediation.”

“Against this backdrop, the conditions for BI to embark on a rate cutting cycle are converging. We expect a total of 75bps cuts in the next one year.”