2 reasons why Bank of Indonesia's policy rate will stand pat at 5.75%

FASBI deposit rate is also expected to remain at 4%.

According to DBS, the urgency to further tighten monetary policy has eased somewhat and we expect the central bank (BI) to keep the policy rate and the FASBI deposit rate unchanged at 5.75% and 4.00% respectively.

Here's more from DBS:

Firstly, the trade balance turned in a surplus of USD 249mn in August, the first since May. Considering that the trade deteriorating trade balance was the main factor behind the widening current account deficit, the return to trade surplus is certainly welcome and does ease concerns about current account financing.

Secondly, inflation came in at just 4.3% YoY in September, much lower than the consensus estimate of 4.6%. Food prices (meat and spices) were the key contributing factors and inflation look likely to stay below 5% for the rest of this year.

Beyond the short term, BI is likely to maintain a gradual tightening stance. The current account deficit is still a concern and the return to trade surplus in August could be a reflection of seasonal factors, which sharply dampened trade volume.

Trade data for September and October will provide a better gauge on the sustainability of robust domestic demand growth in the context of Indonesia’s external imbalances.

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