Bank Indonesia cuts policy rate, more cuts to come says ANZ

JAKARTA - Bank Indonesia cut its key policy rate by 25 basis points to 7.25% at today’s meeting. “All of the arguments the Bank used to justify today’s rate will equally apply in the months ahead, which is why we expect to see another 75bps of easing from Bank Indonesia in coming months with a cash rate of 6.50% struck early in Q3,” says ANZ Bank.

“We were on the wrong side of the consensus regarding this decision, but we are not surprised by it. The Indonesian economy was in need of monetary policy stimulus, Bank Indonesia was keen to impart it and our error in forecasting today's meeting outcome was placing more weight on recent market turmoil than the Bank Indonesia Board of Governors clearly has.”
ANZ says it expects a further 25bps cut in Q1, with another 50bps of easing spread over Q2 and Q3.
“In announcing today's cut, Bank Indonesia announced that it has not seen significant improvement in growth in Q4 and we expect that sluggish momentum of the economy to actually slacken as we head into Q1,” ANZ says.
“We still believe the Indonesian economy will struggle to find a base in the first half of the year; hence we remain comfortable with calling 100bps of easing in what is likely to be an ongoing environment of market turmoil.” www.live.anz.com (ATI).