Indonesia central bank seen holding fire on rates, but not done with easing: Reuters poll

23-Jan-2020 Intellasia | Reuters | 6:02 AM Print This Post

Indonesia’s central bank will likely keep benchmark rates steady at its policy review on Thursday, letting a series of previous loosening steps take effect as it monitors the health of Southeast Asia’s largest economy, a Reuters poll showed.

As part of its efforts to spur growth amid the global economic slowdown, Bank Indonesia (BI) last year cut the key rate four times by a total of 100 basis points, lowered the amount of cash banks must keep as reserves and relaxed lending rules.

Twenty-two of 25 economists in the poll expected BI to hold the 7-day reverse repurchase rate steady at 5.00%, at its first policy meeting of the year.

Three economists expected a 25 basis point cut.

BI estimates the economy will expand around 5.1%-5.5 percent this year, slightly faster than last year’s projected 5.1 percent ratethe first time growth has slowed in four years.

At its last policy meeting in December, BI Governor Perry Warjiyo said the central bank would maintain an accommodative policy in 2020 while supporting consumption and exports.

“I think BI has already done the bulk of the growth-supporting measures…BI will still be accommodative. It’s just not necessarily through interest rates,” said Enrico Tanuwidjaja, an economist with UOB Indonesia, who expects BI to stand pat this week.

UOB Indonesia expects one more rate cut later this year.

Tanuwidjaja said BI will keep its benchmark interest rate steady when the government is stimulating the economy through capital expenditure and while it awaits the US Federal Reserve’s decision.

Meanwhile, Fakhrul Fulvian, an economist with Trimegah Sekuritas expects BI to cut its key rate by 25 basis points this week as a strong currency limits the risk of capital outflows while overall economic data has been weak.

Indonesia’s economy relies more on domestic demand but its growth has also been hurt by slowing global trade as the US-China tariff war dented its exports. That in turn has weighed on domestic consumption.

“Economic growth needs to be accelerated. We see that BI will have another rate cut this week. What’s more to wait?” Fulvian said.

The Indonesian rupiah traded at 13,655 per dollar on Tuesday morning, up around 1.6 percent so far this year, the biggest gainer among emerging Asian currencies.

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Category: Indonesia

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