Bank Indonesia (BI) cut its benchmark 7-day repo reverse repo rate by 25bp to 5.00% today and, with inflation subdued and GDP growth likely to slow, we think there’s scope for more easing over the rest of this year. We now expect rates to be lowered to 4.50% by year-end (previously 5.00%). The key risk to our forecast is that the rupiah comes under pressure, either due to a deterioration in global risk appetite or a renewed flare up in fiscal fears, prompting officials to move more cautiously with additional monetary loosening.
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