Economists Expect Bank Indonesia to Stand Pat on Benchmark Rate
Jakarta. Economists expect Bank Indonesia to maintain its benchmark rate at 4.75 percent during this week's policy meeting, amid rising inflation and uncertainties in the global economy.
Economists at Bank Mandiri, Bank Central Asia, Bank Permata, Bank Danamon Indonesia, DBS Bank, Samuel Asset Management and the SKHA Institute for Global Competitiveness (SIGC) agree that the central bank should keep its seven-day reverse repo rate unchanged.
"Keeping the BI benchmark rate [unchanged] will maintain stability in prices and inflation, which will support people's purchasing power," Bank Permata economist Josua Pardede told the Jakarta Globe on Monday (13/02).
Inflation accelerated to 3.49 percent in January, compared with 3.02 percent in December, as a cut in the government electricity subsidy started to take effect.
The government targets inflation to remain at 4 percent while the central bank will try to keep it contained in the 3 percent-5 percent range this year.
The economists also expect Bank Indonesia to take into consideration uncertainties in the global economy, including restlessness in financial markets ahead of the United States government's new tax-related policies and the trajectory of the US Federal Reserve's rate hikes, which will strengthen the dollar.
These uncertainties are putting pressure on the rupiah, SIGC chief economist Eric Alexander Sugandi said.
The rupiah has strengthened by 0.7 percent against the greenback so far this year, according to Bank Indonesia's Jakarta Interbank Spot Dollar Rate.
On the other hand, global ratings agency Moody's upgraded its credit outlook for Indonesia to "positive" from "stable," which indicates a possible rating upgrade, allowing the country to attract more foreign investors by selling government bonds at lower rates.
Also, Indonesia's current-account deficit has narrowed to 0.8 percent of gross domestic product in the fourth quarter last year and the rupiah has also been resilient against the dollar.
"For now, there is simply no good reason for BI to steer away from its current policy stance," DBS Bank economist Gundy Cahyadi said in a note.
"Chances of another rate cut are limited by the inflation outlook. But BI is also not in a rush to raise rates until there is stronger conviction of the recovery in private investment growth this year," he added.
The announcement of the outcome of Bank Indonesia's policy meeting is scheduled for Thursday, as the central bank will be closed on Wednesday for the simultaneous regional elections.
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