POLL-Indonesia central bank seen keeping rates steady for 4th meeting

18-Nov-2020 Intellasia | Reuters | 6:02 AM Print This Post

A majority of analysts expect Indonesia’s central bank to keep interest rates unchanged this week but maintain a focus on quantitative easing, a Reuters poll showed on Monday, as the economy recovers from its first recession in more than 20 years.

Thirteen of 22 economists forecast Bank Indonesia would hold its benchmark 7-day reserve repurchase rate steady at 4.00 percent on Thursday, for the fourth straight meeting.

However, a significant minority predicted BI would resume its easing cycle with the rupiah gaining more than 3 percent since the central bank’s October meeting.

Eight analysts predicted BI would cut the policy rate by 25 basis points (bps) while one pencilled in a 50 bp cut.

BI has trimmed its key rate four times this year by a total of 100 bps, eased lending rules and pumped liquidity into the financial system in response to the economic impact of the coronavirus pandemic. Its latest cut was in July.

Governor Perry Warjiyo has since argued BI’s liquidity injection operations, including its purchase of government bonds, were more effective in supporting economic recovery, while interest rate differentials were kept attractive to entice capital inflows. However, in recent weeks, Warjiyo said BI still had room to lower rates after third-quarter data confirmed Southeast Asia’s largest economy shrank by a slightly more than expected 3.49 percent from a year earlier.

Bank Mandiri economist Faisal Rachman said a 25 bp-cut was warranted after the third-quarter data, with inflation low and the potential for a current account surplus in July-September.

“Most importantly, we’ve seen capital inflows to the stock and bond markets supporting the rupiah’s movement, they’re enough to convince BI to cut interest rates,” he said.

The rupiah rallied earlier this month, boosted by risk-on sentiment from the US election results and hopes for an effective COVID-19 vaccine. The currency has pared some of its gains in the past few days.

Wisnu Wardana, Bank Danamon’s economist in Jakarta, said data on Monday showing a larger-than-expected October trade surplus of $3.61 billionIndonesia’s biggest in nearly a decadegave BI even more leeway to cut rates, but he maintained his call for no change in the benchmark.

“Based on its previous MPC (monetary policy committee) meeting, the central bank appears to remain comfortable with current rate levels and will focus more on quantitative easing measures,” Wardana said.



Category: Indonesia

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