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Bank Indonesia to hold rates until late 2022 awaiting economic resurgence: Reuters poll

Bank Indonesia to hold rates until late 2022 awaiting economic resurgence: Reuters poll

FILE PHOTO: General view of Sudirman Central Business District (SCBD), following the coronavirus disease (COVID-19) outbreak, in Jakarta, Indonesia, February 5, 2021. REUTERS/Ajeng Dinar Ulfiana

BENGALURU : Indonesia's central bank will hold interest rates steady next week to bolster the economy as activity stalled by the recent devastating COVID-19 wave gradually gathers pace, according to a Reuters poll of economists.

Since the onset of the pandemic, Bank Indonesia (BI) has slashed its benchmark seven-day reverse repurchase rate by 150 basis points to a record low 3.50per cent and injected liquidity worth more than US$57 billion.

All 29 economists expected the rate to remain steady at the conclusion of BI's Oct. 18-19 policy meeting.

Median forecasts from the poll, conducted over the past week, predicted interest rates will stay at their current 3.50per cent until the third quarter of next year, increasing by 50 basis points in the last quarter of 2022 to 4.00per cent.

"As long as inflation remains weak and the currency remains broadly stable, then they are happy to keep monetary policy supportive to try and boost the recovery," said Gareth Leather, senior Asia economist at Capital Economics.

Inflation, at 1.6per cent in September, has held below the central bank's target range of 2per cent to 4per cent since mid-2020 and was expected to remain subdued this year. But it is seen rising next year, to 2.9per cent, and then 3.0per cent in 2023.

The Indonesian rupiah has largely remained steady this year, down around 1per cent against a resurgent dollar. The recent rise in energy prices has also provided support as Indonesia is a major commodity exporter.

The central bank has remained cautious, hoping to avoid any backdraft from the U.S. Federal Reserve's plans to taper its bond purchase program, likely starting next month. When the Fed last tapered in 2013, the rupiah depreciated more than 20per cent.

"In 2013, it was one of the fragile five currencies that got caught up in a big sell-off," Leather said.

"There's a whole bunch of differences (now) all suggesting Indonesia won't get caught up as badly as it did then."

Indeed, analysts say Indonesia's economy is on more solid footing. The current account deficit is relatively narrow, with BI's own estimate at 0.6per cent to 1.4per cent of GDP for 2021.

The trade surplus touched an all-time high in August at US$4.7 billion but was expected to narrow to US$3.8 billion in September.

Indonesia's economy expanded at the fastest pace in 17 years in the second quarter this year, breaking a four-quarter streak of contraction as a result of the pandemic.

But building optimism around the recovery was clouded by an outbreak in July - one of the worst resurgences of COVID-19 in Asia - that compelled authorities to re-impose restrictions.

Southeast Asia's largest economy was predicted to grow 3.2per cent in the quarter just ended and 4.6per cent in this one, according to the latest Reuters poll.

That is down from 4.7per cent and 4.8per cent expected in the last Reuters economic outlook poll taken in July, at the time of the outbreak.

The economy was expected to grow 3.4per cent this year and accelerate to 5.1per cent in 2022. Those forecasts were downgraded from earlier predictions of 4.3per cent and 5.2per cent respectively. Growth is forecast to remain steady at 5.1per cent in 2023, the poll showed.

"Consumption is expected to recover back slowly as restrictions are eased, notably in 4Q21," noted economists at United Overseas Bank. "Investment, too, should recover at a faster pace, supported by rising FDI and recent government efforts to ease business licensing."

(For other stories from the Reuters global economic poll)

(Reporting by Shaloo Shrivastava; Polling by Md. Manzer Hussain and Devayani Sathyan; Editing by Ross Finley and Jonathan Oatis)

Source: Reuters

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