Southeast Asia’s Virus Hotspots Weigh Key Rates: Decision Guide

Rate decisions by two Southeast Asian nations hardest hit by the pandemic are in focus Thursday, with forecasts barely tilting toward a hold in Indonesia while the Philippines struggles to support a fragile economic recovery.

The two central banks will weigh whether further monetary easing is needed as restrictions on movement are loosened, and after gross domestic product in both nations contracted by more than expected last quarter.

Indonesia and the Philippines “are seeing a disappointing pace of recovery,” said Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore. “The difference is fiscal support measures are continuing to be rolled out in Indonesia while the fiscal cliff risks we have been flagging are materializing in the Philippines, with negative growth on government spending.”

Southeast Asia’s Virus Hotspots Weigh Key Rates: Decision Guide

Previous cuts by Bank Indonesia and Bangko Sentral ng Pilipinas have had only limited success in boosting credit growth, as high numbers of daily infections keep businesses and consumers cautious. Each country has recorded more than 400,000 Covid-19 cases, the two largest outbreaks in Southeast Asia.

Some analysts say the banks could be getting closer to lowering rates, with the Indonesian currency demonstrating relative stability lately and a succession of typhoons threatening the Philippines’ shaky recovery.

Both authorities have taken other policy steps to stimulate their economies, such as buying government bonds and reducing banks’ reserve requirement ratios. Tweaks to other monetary tools could be on the table Thursday as policy makers assess the economic scars from the pandemic.

Here’s what to watch out for in the decisions:


Fourteen of 26 economists in a Bloomberg survey expect Bank Indonesia to keep the seven-day reverse repurchase rate at 4%. Eleven forecast a 25 basis-point cut, while one expects a half-point reduction.

Governor Perry Warjiyo, who has held rates steady at the last three policy meetings to stabilize the rupiah, “may need more of a runway and data points before he concludes the rupiah is on stable footing,” said Nicholas Mapa, economist at ING Groep NV in Manila.

Southeast Asia’s Virus Hotspots Weigh Key Rates: Decision Guide

The rupiah has benefited from renewed risk appetite for emerging market assets as progress is made toward a coronavirus vaccine. It’s up nearly 4.5% against the dollar over the past month -- the fastest rise in Asia -- reducing its decline in 2020 to 1.5%. Economic managers are aiming to achieve some expansion in GDP in the fourth quarter, though analysts see a further contraction. Retail sales, consumer confidence and imports all declined in October despite looser curbs on movement.

Policy makers’ assessment of recovery prospects, and the need for further monetary easing and budget support from the central bank, will be closely watched Thursday. Bank Indonesia will likely stick to other measures, including buying government bonds to support the economy, said Radhika Rao, economist at DBS Group Holdings Ltd. in Singapore.


The Philippine central bank will keep the overnight reverse repurchase rate at 2.25% for a third straight meeting, according to 13 of 18 economists surveyed, with the rest predicting a 25 basis point cut.

“We see a containment of the virus domestically and a reopening of the economy as prerequisites before additional rate cuts could have their full effect,” said Noelan Arbis, economist at HSBC Holdings Plc. in Hong Kong. He expects the bank to next cut rates in the first quarter of 2021.

Finance Secretary Carlos Dominguez said Tuesday the government is having difficulty stimulating demand, but still expects the economy to stage a “big bounce back” next year as hopes grow for a vaccine.

Southeast Asia’s Virus Hotspots Weigh Key Rates: Decision Guide

Central bank Governor Benjamin Diokno has indicated policy will remain loose until economic and employment targets are reached, while the central bank has said there’s space to cut reserve requirement ratios further. Given the dovish tinge from policy makers, analysts are alert to any hint of what might trigger fresh monetary support.

“If liquidity is ample, then a rate cut would not be that meaningful,” said Trinh Nguyen, economist at Natixis SA in Hong Kong. Policy makers could instead further lower banks’ reserve requirement ratios, she said.

©2020 Bloomberg L.P.

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