Decision of the Bank Indonesia Board of Governors This Week

15 Feb 2021 Written by: Redaksi OCBC NISP

Investors are waiting for Bank Indonesia’s (BI) announcement about monetary policy on Thursday, February 18th.

The Board of Governors' meeting will start this Wednesday. For the last month, BI decided to maintain the BI 7-Days Reverse Repo Rate or the benchmark interest rate at the level of 3.75%. In addition, BI also maintained the facility deposit rate and lending facility rate at the level of 3.00% and 4.50%, respectively.

This February, Bloomberg consensus predicts that BI will cut its benchmark interest rate by 25 basis points (bps) to 3.50%. Bloomberg shows that 17 out of 22 economists predict this. Previously, the Governor of BI, Perry Warjiyo, also briefly stated that the central bank opened the opportunity to lower the benchmark interest rate to boost economic growth. Especially with the Indonesian economy in the fourth quarter of 2020 which still contracted -2.19% YoY, worse than BI's estimate of positive growth.

In the future, BI will still see several conditions. Some of them include low inflationary pressure and the relatively stable rupiah exchange rate against the US dollar. BI policy will remain accommodative to help national economic recovery.

Investment Strategy:

Bank Indonesia, which has the potential to cut its benchmark interest rate to the level of 3.50% this week, has the potential to provide positive sentiment for the financial market, especially the bond market. In addition, the cuts will also push loan interest rates down again. This will increase the purchasing power of the public and entrepreneurs in expanding their business, so that Indonesian economy can move faster. For the stock market, the weakening in the stock market can be used as a momentum for accumulation. As for the bond market, accumulation in medium-long tenors can also be done,as the 10-year yields are still in the range of 6.20%.


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