Last month's unexpected interest rate cut implied BI's concern over the risk of a domestic economic slowdown, which prompted BI to change its policy direction to one that supports growth. Inflation is low and stable. Even though economic growth in the second quarter of 2019 (5,05%) was lower than expected, the domestic economy still looks attractive to foreign investors. From the external side, the US-China trade war tensions which are starting to ease and the possibility of the Fed reducing interest rates at the upcoming FOMC meeting also contributed to the influx of portfolio investment. In terms of current account performance, we saw several signs of improvement that made CAD easier to manage until the end of the year. This development should open up space for BI to provide further easing in monetary policy. We see that BI needs to continue its easing stance by reducing the policy interest rate by 25 bps this month.

Download (PDF, 1.34MB)