Indonesia central bank keeps rates steady, sees slower second-quarter growth

JAKARTA (Reuters) - Indonesia’s central bank on Thursday held its benchmark interest rate unchanged for a ninth straight policy meeting, although it said the economy likely grew more slowly than initially expected in the second quarter.

Logo of Indonesia's central bank, Bank Indonesia, as seen in Jakarta, Indonesia January 19, 2017. REUTERS/Fatima El-Kareem

Bank Indonesia (BI) left its 7-day reverse repurchase rate IDCBRR=ECI at 4.75 percent, where it has been since October, after one of its longest policy meetings. All 17 analysts in a Reuters poll predicted the hold.

Officials at the bank said the lengthy meeting was not due to any out of the ordinary matter, but the board of governors had comprehensively assessed global and domestic risks.

“The recovery process of the domestic economy continues but it has not been as strong as we initially estimated due to weakening consumption, although on the other hand investment increased,” BI said in a statement released after the meeting.

Dody Budi Waluyo, Bank Indonesia’s (BI) executive director of economic and monetary policy, said growth was expected to be “around 5.1 percent” in the April-June quarter.

Southeast Asia’s largest economy grew 5.0 percent in the first quarter. The country’s statistics bureau is due to announce second-quarter GDP growth on Aug. 7.

BI listed a number of risks it was monitoring, including higher U.S. interest rates, a balance sheet reduction by the Federal Reserve and banking consolidation at home.

But it did not refer to inflationary pressure as a risk and said that price pressures had abated.

In June, annual inflation hit a 15-month high of 4.37 percent, but was still within BI’s target range of 3-5 percent.

Last year, lower inflation allowed BI to cut its benchmark rate six times by a total of 150 basis points in a bid to help boost lending and economic growth.

Capital Economics’ economist Gareth Leather said “the economy would benefit from interest rate cuts” as slow credit growth, a weak fiscal position and disappointing progress on reform “mean there are few tailwinds for the economy”.

But Leather said a cut was unlikely given BI would remain concerned about inflation.

BI’s Waluyo said: “BI’s ‘stimulus’ to support consumption is by managing the inflation rate.” The official though stressed that the central bank’s monetary stance remained neutral.

Additional reporting by Gayatri Suroyo and Fransiska Nangoy; Editing by Ed Davies and Alison Williams