January 23, 2020 / 8:52 AM / a month ago

Indonesia central bank holds rates, sees economic cycle past worst

JAKARTA (Reuters) - Indonesia’s central bank kept interest rates unchanged at its first policy meeting of the year, saying the country’s economic cycle had passed its lowest point though it left the door open for further “accommodative” policies when conditions allow.

FILE PHOTO: Bank Indonesia's logo is seen at Bank Indonesia headquarters in Jakarta, Indonesia, January 17, 2019. REUTERS/Willy Kurniawan

Bank Indonesia (BI) held the benchmark 7-day reverse repurchase rate IDCBRR=ECI unchanged at 5.00%, as expected by most of the analysts polled by Reuters, viewing current policy as conducive to anchoring inflation, supporting economic growth and maintaining financial market stability.

“The economic cycle in Indonesia has passed its lowest point and will continue to improve,” Governor Perry Warjiyo said, adding that upward momentum would be supported by global growth and higher export demand, including for Indonesian commodities.

Twenty-two out of 25 economists in a Reuters poll had expected BI to hold the key rate steady at 5.00% on Thursday, while only three had anticipated a 25 basis point cut.

BI had cut the key rates four times last year for a total of 100 basis points to help support sluggish economic growth. It has also cut bank reserve requirements and relaxed some lending rules to boost credit growth.

Loan growth, however, has remained stubbornly slow. Official data showed that loan growth slowed to 6.08% in December, the slowest pace since November 2009, according to Eikon Refinitiv data.

Warjiyo expects easing policies implemented last year to continue to trickle down to the banking system and start having an impact on loan growth, which he expects to improve to a 10%-12% growth rate in 2020.

SCOPE FOR MORE EASING

Bank Indonesia is confident economic expansion will improve to 5.3% in 2020, up from around an estimated 5.1% for 2019, still Warjiyo said all policy instruments would be geared toward supporting economic growth.

Some economists said that while BI was more upbeat in tone, further easing was more likely than not.

“Sooner or later BI will cut the rates, but please note that in their statement, it seems like BI started to be more optimistic in their global economic outlook,” said Fakhrul Fulvian, an economist with Trimegah Sekuritas in Jakarta.

“Looks like BI wants further clarity before resuming policy easing,” Fulvian said, adding that a further rate cut could happen as early as next month.

Indonesia’s Bank Danamon and ANZ Bank both see scope for another 25 bp cut.

Meanwhile, Indonesia's economic growth and more stable global financial markets have supported capital inflows into the country so far this year, underpinning the rupiah IDR=ID.

Warjiyo said the rupiah’s level remained in line with fundamentals and expected it to remain stable.

The rupiah has gained around 1.9% against the dollar so far this year, making it the top gainer among emerging Asian currencies.

Additional reporting Tabita Diela; Writing by Fransiska Nangoy; Editing by Ed Davies and Jacqueline Wong

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