ANZ tips slower Indonesian economy to stabilise rupiah

JAKARTA – In a detailed assessment of recent moves by Indonesia’s Central Bank, ANZ Bank says the over-arching message from a recently-concluded investor trip is that IDR stability is contingent upon an adjustment in Indonesia’s real economy.

“To this end, Indonesia policymakers have adopted the classic approach of expenditure compression and switching,” the assessment says.

“It comprises monetary and fiscal tightening and raising import duties.

“At the same time, subsidisation of domestic fuel prices and limited monetary policy transmission through lending and deposit rates are slowing the adjustment of higher interest rates on the Indonesian economy.”

ANZ says it now expects Bank Indonesia to raise its policy rate by 75 basis points in the remainder of 2018 and a further 25 basis points in 2019.

“We do believe that these steps will over time stabilise the Rupiah, but at the cost of slower growth and potentially higher inflation as fuel prices are adjusted after the Presidential elections.”  www.live.anz.com (ATI).