[Kabar-indonesia] Outlook: BI to cut key rate next week but no consensus on size

[Joyo at aol.com]

Outlook - Bank Indonesia to cut key rate next week but
no consensus on size

JAKARTA, September 1 (XFN-ASIA) - Bank Indonesia (BI)
looks set to cut its key policy rate again next week,
but there is no clear consensus on the extent of the
reduction, according to analysts polled by XFN Asia
said.

The BI board of governors will hold its policy meeting
for the month, next Tuesday.

A slim majority of those surveyed expect the central
bank to cut its BI rate by 25 basis points (bps) from
the current level of 11.75 pct.

But five of the 11 polled believe the cut could be as
much as 50 bps, given expectations that inflation is
in a declining trend, with August CPI data due out
later today, likely to reinforce that view.

They also believe a more aggressive reduction is in
order to give the economy a boost.

Bank Lippo economist Winang Budoyo believes though
that the BI will be more cautious next week and he is
picking a 25 basis points cut.

"Given the possibility of another US rate hike this
year, I think BI will be more conservative," he said.

IDEAglobal economist Ramya Ramachandran said the
stable rupiah and declining inflation support a 25 bps
rate cut this month.

"But we think such a cut is not without its risks as
we are worried that oil smuggling is going up and that
this may tell on the rupiah when capital inflows ease
and exports slow," she said.

ANZ economist Jasmine Robinson is also picking a 25
bps reduction.

Mandiri Securities economist Destry Damayanti also
favours a moderate pace of policy tightening. "Given
the fact that Indonesia's financial markets are highly
dependent on fund flows, we believe the BI should be
very cautious and not too aggressive in cutting the
rate in order to avoid massive capital outflows,"
Damayanti said.

Meanwhile, Danareksa economist Michael Hawari believes
a 50 basis points cut is in order as does Citigroup
economist Anton Gunawan.

"With a pause in the US Federal funds rate hike, while
the real economy is growing slower than expected, we
expect to see another 50 bps cut in the BI policy
rate," Gunawan said in a client note.

A second 50 bps cut after last month's reduction
should help hasten the pace of economic growth in the
second half, and he is picking the BI rate to fall to
10.5 pct by year end.

DBS economist Lim Su Chian also believes a 50 bps cut
is in order, noting that domestic demand still needs
to be stimulated.

She said the central needs to ensure that once
inflation starts to ease significantly in October,
real interest rates are not too high.

"We're looking for the BI rate to be cut to 10.0 pct
by year end, and with inflation falling to about 8.0
pct, this should mean a real interest rate of around
2.0 pct," she said.

Kahlil Rowter of CIMB GK is another economist who
believes the time is right for a more aggressive cut,
given that the rupiah has been stable recently at
around 9,000-9,100 to the US dollar with indications
it could strengthen further.

"So there is no immediate fear that cutting rates
could hurt the rupiah. In general the macroeconomy is
stable. Hence this is the time to cut big," he said.

Below is the summary of forecasts for the BI rate
after the Sept meeting and size of cut (in brackets):

1. ANZ - 11.50 pct (-25 bps)

2. Bank Lippo - 11.50 pct (-25 bps)

3. UOB - 11.50 pct (-25 bps)

4. Mandiri Securities - 11.50 pct (-25 bps)

5. IDEAglobal.com - 11.50 pct (-25 bps)

6. BII - 11.50 pct (-25 bps)

7. Danareksa - 11.25 pct (-50 bps)

8. Citigroup - 11.25 pct (-50 bps)

9. DBS - 11.25 pct (-50 bps)

10.CIMB - 11.25 pct (-50 bps)

11. ING - 11.25 pct (-50 bps)

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Joyo Indonesia News Service
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