Bank of Indonesia not likely to ease monetary policy

It needs to stabilize the currency and external balances above all else.

According to DBS, despite improvements in the external environment and a more positive outlook for capital flows, these do not mean that monetary policy in Indonesia will turn more accommodative.

"Weak global demand conditions and high oil prices mean that Bank Indonesia will have to pay more attention to currency stability and external balances, obliging tighter monetary policy," it said.

"While the speed of tightening will depend on the evolution of global economic conditions and the strength of capital inflows, it seems likely that Bank Indonesia will tighten monetary policy further over the medium-term to achieve better balance between domestic and external demand conditions and to ensure sustainable growth," it added.