Bank Indonesia kept the benchmark rate on hold at 5.75% on Wednesday, in line with our expectations. Meeting a day after heightened volatility in the domestic equity and currency markets (see Market volatility to keep BI cautious today), the central bank reiterated that they will continue to stabilise the rupiah by intervening in the spot, NDF and bond markets. The economic assessment was broadly unchanged, with inflation expected to remain within the target. BI expects the US Fed to lower rates this year, whilst also seeing room for local rates to be cut at an opportune time (DBSf: 50bp more cuts). Separately, the parliament is in midst of discussing revisions to the 2023 Development and Strengthening of the Financial Sector Law, which might include assessing the central bank’s role and rules around government bond purchases, according to reports. On this matter, Governor Warjiyo clarified that whilst BI’s mandate had been discussed, no changes were likely on this account. Authorities, meanwhile, continue to play a supportive role in the domestic bond markets, with purchases worth IDR 70.74trn completed by March 18. Their holding of outstanding bonds stood at a quarter of the total as of end-February, with foreign investors’ share steady around 15%. Looking ahead, despite favourable inflation dynamics, BI is expected to stay reticent to ease the policy rate in April, if global conditions remain unconducive and domestic uncertainties persist.
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