The rupiah weakened for a second day on speculation the central bank will loosen monetary policy after the current-account deficit narrowed.
Bank Indonesia, which reviews it policy rate on Tuesday, would consider easing if inflation and the current-account deficit were under control, Peter Jacobs, a director at the monetary authority, said last week. While only 3 of 18 analysts surveyed by Bloomberg forecast a reduction in the rate to 7.25 percent on Tuesday, some see the central bank using other measures to help spur growth from the slowest since 2009.
“The deficit has narrowed while growth is slowing and the inflation outlook seems benign, so we predict a cut,” Eric Sugandi, a senior economist at Standard Chartered Plc, said by phone from Jakarta. “As long as a rate cut can be justified by the data, Bank Indonesia can do so, but the rupiah would still react negatively.”
The rupiah dropped 0.4 percent to 13,184 a dollar as of 9:52 a.m. in Jakarta, following a decline of the same magnitude on Monday, prices from local banks show. The currency’s one-month non-deliverable forwards fell for a third day, losing 0.2 percent to 13,296, according to data compiled by Bloomberg.
The shortfall in the broadest measure of trade narrowed to $3.8 billion in the March quarter, or 1.81 percent of gross domestic product, from $6.2 billion in the previous period, the central bank said in a May 15 statement. It has kept the reference rate at 7.50 percent since a surprise cut in February.
“While they don’t have much room to cut, they’re keeping an eye on the growth slowdown as well,” said Euben Paracuelles, a senior economist in Singapore at Nomura Holdings Inc. The central bank could relax loan deposit ratio-linked reserve requirements, which could provide some liquidity to banks, or provide incentives for banks to lend more to small-and-medium enterprises, he said.
The yield on government bonds due March 2024 climbed three basis points, or 0.03 percentage point, to 8.04 percent, the highest level in a week, according to prices from the Inter Dealer Market Association.