October 12, 2020
JAKARTA (Reuters) – Indonesia’s central bank is expected to keep its benchmark interest rate unchanged on Tuesday and continue to focus on supporting Southeast Asia’s largest economy via quantitative easing, according to analysts in a Reuters poll on Monday.
All but two of 27 analysts in the poll expected Bank Indonesia (BI) to maintain its 7-day reverse repurchase rate <IDCBRR=ECI> at 4.00%, where it has been since July. The two contrarians said BI would cut the rate by 25 basis points.
BI has trimmed the rate four times this year for a total 100 basis points, bought government bonds and loosened lending rules to bolster Indonesia’s coronavirus-stricken economy.
Analysts with ANZ said the rate would likely be kept unchanged as the rupiah <IDR=> “has remained fairly weak, despite regaining a bit of ground in recent days”.
“The decision to stay on hold does not imply that BI is stepping away from monetary accommodation. Rather, it is changing its composition from rate cuts to quantitative easing,” the ANZ analysts wrote in a note on Friday.
BI Governor Perry Warjiyo said in the bank’s last two meetings that quantitative easing was preferable for boosting the economy, with rates kept steady to maintain an attractive spread for portfolio investors.
The rupiah had been under pressure after analysts raised concerns over a proposed amendment of the central bank act that could undermine BI’s independence and prolong its debt monetisation operations, which are currently allowed only as a response to the pandemic.
But the currency has gained after last week’s passage of President Joko Widodo’s Job Creation bill, which economists say could improve the nation’s investment climate, even as the law triggers nationwide protests.
Some analysts see more cuts still to come, with inflation below BI’s 2%-4% target and the economy needing support. The median forecast of a smaller pool of analysts in the poll is for a key rate at 3.75% by the third quarter of next year.
Indonesia’s GDP will shrink for the first time in more than two decades this year due to the COVID-19 pandemic, according to a government estimate, compared with 5% growth in 2019.
(Polling by Nilufar Rizki, Fransiska Nangoy and Tabita Diela in Jakarta, and Shaloo Shrivastava in Bengaluru; Writing by Gayatri Suroyo; Editing by Tom Hogue)
