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Bank Indonesia holds amid fuel subsidy uncertainty - TD Securities

FXStreet (Łódź) - Cristian Maggio, Head of Emerging Markets Research at TD Securities comments on Bank of Indonesia's decision to hold monetary policy steady in September, keeping the BI rate and the FASBI rate steady at 7.50% and 5.75%, respectively.

Key quotes

"On the inflation front, BI seems comfortable with projections at 3.5-5.5% in 2014 and 3-5% in 2015, both within target."

"Any attempt from the government to cut the fuel subsidies may prompt a hawkish reaction from the central bank."

"On the rupiah performance, BI believes that external and domestic factors have recently affected its performance."

"We think BI continues to sit on its hands waiting for cues from the government about the fuel subsidy policy."

"President-election Jokowi will be sworn in and the government formed in October, which means any potential fuel price hike could materialize at the earliest in about a month."

"If the government delivers on this front—as we expect—we would see BI reacting by hiking interest rates. For these reasons, we forecast a final +25bp in Q4."

"Implications for the rupiah should be positive, helping to achieve convergence towards our year-end forecast of 11,570 to the dollar."

"We also expect the front-end of the NDS curve to move higher from current levels, while the long end is more consistently priced in the case of a rate hike, in our opinion."

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