Skip to main content

Advertisement

Advertisement

Business

Indonesia central bank seen holding rates steady as economy gradually reopens: Reuters poll

Indonesia central bank seen holding rates steady as economy gradually reopens: Reuters poll

Indonesian rupiah banknotes are seen after they were counted at a money changers in Jakarta, Indonesia April 25, 2018. REUTERS/Willy Kurniawan/Files

JAKARTA : Indonesia's central bank is expected to keep its key interest rate steady next week as the economy gradually reopens after a recent devastating COVID-19 wave, while a record high trade surplus should provide underlying support to the local currency.

All 25 analysts surveyed by Reuters expected Bank Indonesia (BI) to hold the benchmark 7-day reverse repurchase rate at 3.50per cent on Tuesday after a two-day policy meeting.

BI has kept rates at record lows since February as it tries to support the coronavirus-hit economy without adding pressure on the rupiah, which has fallen about 1.5per cent this year amid talk of U.S. tapering.

Data this week showed Indonesia's trade surplus reached a record of US$4.74 billion in August, on the back of lofty commodity prices, and analysts expected this to underpin the rupiah currency.

While a stronger rupiah provides the central bank with some leeway to keep policy accommodative, analysts did not expect any further rate cuts and predicted BI would focus more on liquidity measures.

"The expected strong trade surpluses in late 3Q and possibly early 4Q will help temper net dollar demand from onshore corporates, thus could be supportive for IDR in the near term," said Citi economist Helmi Armand in a note.

"That said, we make no changes to our view on the policy rate.... we remain of the view that policy rates have bottomed."

Southeast Asia's biggest economy pulled out of recession in the second quarter, but a COVID-9 resurgence and mobility restrictions imposed in July to August likely weighed on growth.

Restrictions have been gradually eased since late August, with daily coronavirus infection numbers falling to under 4,000 in recent days.

"Relative to how things were just a month or two ago, the Indonesian economy is in a decidedly better place now," said Wellian Wiranto, an OCBC economist, who expected BI to keep rates unchanged "for a long while".

Analysts in the Reuters poll expected BI's key rate to remain unchanged in the first half of 2022 and only be raised in the third quarter to 3.75per cent.

Central bank officials have pledged to keep interest rates low until inflation starts rising. Inflation has stayed below BI's 2per cent-4per cent target range since mid-2020.

BI has cut interest rates by a total of 150 basis points and injected liquidity worth more than US$57 billion since the start of the pandemic in 2020, while it signed an agreement with the government last month to purchase bonds worth up to 439 trillion rupiah (US$30.81 billion) in 2021 and 2022.

(Polling by Shaloo Shrivastava, Vivek Mishra and Md Manzer Hussain in Bengaluru; Writing by Gayatri Suroyo; Editing by Ana Nicolaci da Costa)

Source: Reuters

Advertisement

Also worth reading

Advertisement