Economists Expect No Surprise on Benchmark Rate This Week


DECEMBER 13, 2016

Jakarta. Economists expect Bank Indonesia to keep its benchmark rate unchanged at 4.75 percent in its last board of governors' meeting for this year on Thursday, Dec. 15, due to an inflationary uptrend and possible pressures on the the rupiah as the market anticipates an increase in the US Federal Funds Rate.

"We think it's time to assess and calibrate changes in the geo-economic and geo-political situations before making a decision on where to go next," Wisnu Wardana, an economist with Bank Danamon Indonesia, said in a note on Tuesday (13/12).

Josua Pardede, an economist with Bank Permata, said inflation will pick up next year on the back of higher electricity costs and gas prices. He expects inflation will increase to around 4.5 percent next year, up from around 3 percent now.

Meanwhile, the Federal Reserve or the Fed, the US central bank, is expected to raise its key rate at its Federal Open Market Committee meeting on Wednesday.

Lana Soelistianingsih, an economist with Samuel Asset Management, said she expects Bank Indonesia to respond to the possible Fed Funds Rate hike by keeping its own benchmark rate steady.

Bank Indonesia adjusted its main monetary policy instrument by opting to use the seven-day reverse repurchase rate as its benchmark since Aug. 19 in an effort to make its monetary policy transmission more effective.

It previously used its 12-month reference rate as a benchmark, called the BI Rate.

The seven-day reverse repo rate has been cut by 75 basis points in total since April.

Despite the central bank loosening its monetary policy, commercial banks' lending rates have been slow to fall. Rates nationwide fell by only 62 basis points on average, Bank Indonesia data showed.

Deposit rates also declined only sluggishly, down 129 basis points from January to October.

"The impact from the government aggressively loosening up its monetary policy this year will only start to be seen in early-2017, given the typical lag in policy transmission," Gundy Cahyadi, an economist at Group Research DBS Bank, said.