The BI is likely to keep the policy rate on hold and forecast one rate cut in June after the release of the May CPI print. However, the government has seen pressuring BI to cut rates, given slowing growth, even though BI has favored a tight monetary stance to manage the current account deficit. Indeed, the recently reported Q1 CAD at 1.8% is wider than BI’s initial estimate of 1.6% of GDP for the first quarter. Considering that the IDR reacted negatively when BI lowered the policy rate 25bp in February, a surprise cut or any clear indications of a shift in policy bias may lead the IDR to sell off further. The IDR seems to be underperforming in the coming months due to unfavorable current account seasonality arising from income payment outflows.
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