Jakarta. Bank Indonesia kept its key interest rate unchanged as expected on Thursday (18/01), but pledged to accelerate planned changes of rules on reserve requirements, to give banks more liquidity and encourage them to invest money.

The central bank held the seven-day reverse repurchase rate at 4.25 percent for a fourth straight month, as predicted by all 18 analysts polled by Reuters.

The deposit facility and lending facility rate, the floor and ceiling rates, were kept at 3.50 percent and 5.00 percent, respectively.

Analysts are split over whether the easing cycle has ended.

"The economy could certainly do with more support," Capital Economics said in a note. "Although inflation rose slightly in December...it is unlikely to be a barrier for further easing."

Bank Indonesia said it would bring in faster plans to relax its reserve requirement for banks and would start similar averaging rules for foreign exchange deposits and Islamic banks.

Banks would still be required to keep an average of 6.5 percent of their deposits at the central bank over a two-week period, but need only have a 4.5 percent deposit each day. That would give them 2 percentage points of flexibility, up from 1.5 percent now.

For foreign deposits, banks would only be required to have a minimum 6 percent daily reserve, but would have to maintain their reserves at an average of 8 percent over two weeks.

"The objective for this change is to increase liquidity capability for banks," said Dody Budi Walujo, head of macroeconomic policy at Bank Indonesia. "Banks would have more room to be more effective [with their reserves] and to gain better returns."

The change is expected to be adopted starting from July for conventional rupiah deposits and October for foreign exchange deposits and sharia banks.

Bank Indonesia first changed the reserve requirement rules from a fixed daily amount to a two-week average last year.

Dody said the change would also help Bank Indonesia to achieve a more effective policy transmission and encourage banks to use excess funds to investment in financial markets.

The central bank, which cut the benchmark rate by 150 basis points in 2016, cut it a further 50 basis points last year, despite concern over possible outflows that could weaken the rupiah .

With the cuts, the central bank had hoped to stimulate a pick-up in growth and lending by banks.

However, loan growth remains stubbornly low. It has been below 10 percent annually every month since the beginning of 2016, when the economy was hit by a commodity downturn.

This has contributed to keeping economic growth close to 5 percent and well below a target set by President Joko "Jokowi" Widodo in 2014 of attaining 7 percent by 2019, when his five-year term ends.

On Thursday, Bank Indonesia forecast 2017 economic growth of 5.1 percent, and a growth range of 5.1 percent to 5.5 percent this year.

The statistics agency will announce 2017 fourth-quarter and full-year gross domestic product growth data in early February.

Reuters