Bank Indonesia Seen Holding Key Rate for a Fourth Month

Bank Indonesia likely will keep its key interest rate unchanged on Thursday (18/01).(Reuters Photo/Iqro Rinaldi)

By : Nilufar Rizki, Tabita Diela and Shaloo Shrivastava | on 4:13 PM January 16, 2018
Category : Business, Economy

Jakarta/Bengaluru. Indonesia's central bank likely will keep its key interest rate unchanged on Thursday (18/01), a Reuters poll showed, as authorities remain in a position where they have no need to hike and also no wish to cut.

All 18 analysts polled by Reuters said that they expect Bank Indonesia (BI) to hold the seven-day reserve repurchase rate at 4.25 percent.

If that proves to the case, January will be the fourth month BI held the rate after consecutive cuts in August and September in effort to try boost lending, consumption and growth.

The interest rate will remain unchanged as "all indicators show inflation outlook would remain within Bank Indonesia's expectation and rupiah stability would be maintained," said Fakhrul Fulvian, an economist with Trimegah Securities in Jakarta.

While it will not alter the benchmark rate, Fulvian said BI may introduce some amendments in monetary policy after the two-day meeting that ends on Thursday. He expects the central bank to introduce a financing-to-funding ratio, which would provide a wider gauge of how banks distribute loans.

In November, BI said it planned to include corporate debt bought by banks in its financing distribution calculations.

BI also said it plans to further relax its rule on reserve requirements during 2018.

In 2016, the central bank cut its benchmark rate six times, but a total of 150 basis points, in a bid to boost lacklustre economic growth.

Annual growth has remained close to 5 percent, which makes some economists expect fresh interest rate cut later in 2018.

But many feel there's no scope to cut rates further now, as Indonesia wants to support the rupiah currency and avoid potential capital outflows as the Federal Reserve continues to raise US interest rates.

During 2017, even with the US dollar weak globally, the rupiah weakened about 0.6 percent against the greenback.

Capital Economics, in a Jan. 12 note, said Indonesia has a "poor outlook" for growth, which signals further monetary easing is needed.

"Weak commodity prices, tight fiscal policy and disappointing progress on reform suggest a rebound is not imminent," it said.



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