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Bank Indonesia keeps key interest rate on hold at 5 pct
Bank Indonesia kept its 7-day reverse repo rate on hold today 5 percent, as was anticipated. This is the third consecutive month that the central bank has kept the rate on hold, following a 25 basis points cut each in its monthly meetings from July to October of 2019. The central bank was more specific about its 2020 growth forecast today.
It expects the economy to grow close to 5.3 percent, which is the midpoint of its 5.1 to 5.5 percent projection. It has maintained its estimates for growth of 5.1 percent for 2019, current account deficit of 2.7 percent of GDP in 2019 and 2.5 to 3 percent in 2020. It expects inflation to come in at the range of 2 percent to 4 percent in 2020. Nevertheless, the BI raised its 2020 global growth forecast to 3.2 percent from 3.1 percent.
The press conference’s tone was reasonably positive, with Governor Perry Warjiyo noting that global uncertainties are slowing down and that the domestic economic cycle has bottomed. Markedly, while the governor hinted that monetary policy might remain accommodative and that the BI has room for further easing, there are no signs to imply that the central bank is in any rush to cut its policy rate further, said ANZ in a research report.
The BI’s easing cycle has been believed to be nearing its end. With the US Fed unlikely to cut its policy rate further and other major central banks in the region such as India turning less dovish, there is more impetus for BI to use its policy space judiciously and keep the relative yields of its domestic financial assets attractive.
“However, we continue to see scope for one last 25bp rate cut in the current cycle. We are relatively more cautious about the growth outlook, not least because weak prices for Indonesia’s key commodity exports, particularly coal, are still a challenge. Meanwhile, inflation is benign and will not pose a hurdle to monetary easing. We also note that loan growth has been slowing and is likely to continue to disappoint BI, which is anticipating loan growth of 10-12 percent in 2020”, added ANZ.