Indonesia, Philippines Set to Hold Rates With Outlook Dim: Guide

Central banks in Indonesia and the Philippines are expected to keep their key interest rates steady Thursday, letting recent reductions filter through economies facing difficult recoveries.

The two banks have been among Asia’s most aggressive rate cutters this year, as their nations are grappling with the worst coronavirus outbreaks in Southeast Asia and their economies have plunged into recession. Policy makers have also used other tools such as lowering reserve requirement ratios and buying bonds to stimulate their economies.

While the outlook remains challenging in both Indonesia and the Philippines, the central banks are probably close to the end of their easing cycles, said Eugenia Victorino, head of Asia strategy at Skandinaviska Enskilda Banken AB in Singapore.

Indonesia, Philippines Set to Hold Rates With Outlook Dim: Guide

Bank Indonesia will “focus on improving monetary transmission” in the near term, but “will not hesitate to take another opportunistic cut” if the rupiah currency appreciates faster than its Asian peers, Victorino said. In the Philippines, the impact of easing “has been limited” amid domestic demand “struggling” due to people’s limited movement amid the pandemic, she said.

If the banks stand pat as expected, the focus will turn to any hints that a fresh round of cuts could start early next year. That depends on currency strength in Indonesia, and on the pace of inflation and economic recovery in the Philippines absent a significant fiscal boost.

Here’s what to watch out for in Thursday’s decision:


After cutting its key rate by a total of 125 basis points this year, Bank Indonesia will hold steady at 3.75% on Thursday, according to 24 of 30 economists surveyed by Bloomberg. The rest predict a 25 basis-point reduction.

“Bank Indonesia will prefer to look at the efficacy of its previous policies,” said David Sumual, an economist at Bank Central Asia in Jakarta. “The pressure is more on the government with its fiscal policies.”

Indonesia, Philippines Set to Hold Rates With Outlook Dim: Guide

Bank Indonesia Governor Perry Warjiyo has pledged to keep policy accommodative and use all instruments available to support the economy. BI estimates Southeast Asia’s largest economy will shrink 1% to 2% this year -- worse than the government’s forecast of -0.6% to -1.7% -- as new coronavirus cases and deaths remain elevated. Warjiyo expects growth of 4.8% to 5.8% next year.

Analysts will also watch for other monetary tools policy makers may use, including measures to boost lending. BI recently concluded its direct government bond purchases of 397.56 trillion rupiah ($28.2 billion) under a burden-sharing program.

With domestic funding costs still high, BI may need to cut the key rate early next year, said Satria Sambijantoro, economist at PT Bahana Sekuritas in Jakarta. Trade and current-account surpluses this quarter could pave the way for another 25 basis-point cut before a “long pause in 2021,” he said.


After a surprise rate cut last month, Bangko Sentral ng Pilipinas will keep its key rate at 2% on Thursday, according to all 16 economists in a Bloomberg survey.

“Further easing is highly unlikely at this meeting, with BSP likely to wait until early next year before cutting again,” said Mitul Kotecha, senior emerging markets strategist at TD Securities in Singapore. A cumulative 2 percentage-point cut this year and quickening inflation presage a “pause for thought” this week, he said.

Indonesia, Philippines Set to Hold Rates With Outlook Dim: Guide

Governor Benjamin Diokno has said the central bank has ample room to keep policy accommodative and is ready to use the full range of tools in its arsenal. BSP has been at the forefront of the country’s virus-relief efforts, as the government has opted not to pursue outsized spending packages in order to preserve its sovereign credit rating.

The bank also has authority from its board to lower reserve requirement ratios by another 200 basis points this year. Given its dovish bias and an economy that shrank by more than expected last quarter, this option remains on the cards in coming weeks.

©2020 Bloomberg L.P.

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