Bank Indonesia keeps key interest rate on hold at 4 pct

Bank Indonesia kept its key interest rate on hold today at 4 percent, as anticipated, citing a desire to maintain external stability. Today’s decision reflects a desire to maintain external stability. The IDR has been the region’s weakest performing currency so far in August. The central bank has released statements over the past week underlining that it has been intervening in the FX market and today repeated that it would continue IDR stabilization measures.

During the press conference, BI governor Perry Warjiyo noted that the economy has begun indicating signs of rebound in June and July, and expects domestic growth to be better in the second half. GDP has dropped 5.3 percent year-on-year in the second quarter, the first negative growth print since the Asian Financial Crisis.

However, the governor underlined that BI will maintain a loose monetary policy, and repeated that quantitative measures would be more effective than policy rate cuts in boosting the economy. Indeed, in spite of multiple rate cuts, loan growth has stayed quite subdued, which the governor has linked to the soft economy and impact of the pandemic. On this front, a new measure the central bank announced today is permitting some banks to lower the down payment ratio for auto loans beginning 1 October, amid struggling car sales.

The accompanying monetary policy statement repeated the BI’s commitment to supporting the government’s fiscal growth.

“While the government has loosened fiscal policy significantly, a faster pace of disbursement is needed to stimulate economic activity. While Indonesia’s economy has improved since the bottom seen in April/May, we note that real time indicators suggest the pick-up in activity has started to stall as infections have remained high”, said ANZ in a research report.