In­done­sia cen­tral bank holds rates, sees 'lim­ited' growth gains

The Pak Banker - - FRONT PAGE -

JAKARTA: In­done­sia's cen­tral bank on Thurs­day held its bench­mark in­ter­est rate, con­trary to ex­pec­ta­tions for a fifth cut this year, and said pre­vi­ous eas­ing moves are help­ing the slug­gish econ­omy im­prove.

The 12-month ref­er­ence rate, its cur­rent bench­mark, was kept at 6.50 per­cent. Eleven of 16 econ­o­mists in a Reuters poll pre­dicted a 25 ba­sis point (bp) cut. Start­ing next month, Bank In­done­sia (BI) will switch to the 7-day re­verse re­pur­chase rate as its bench­mark. That rate was also held on Thurs­day, at 5.25 per­cent. BI's eas­ing moves have been aimed at boost­ing growth, which last year slid to 4.8 per­cent, the low­est since 2009.

The cen­tral bank's changes in bench­mark, an­nounced in April, is in­tended to better trans­mit mon­e­tary pol­icy to the mar­ket, which should in­crease the im­pact of its eas­ing cy­cle.

BI said on Thurs­day that trans­mis­sion has im­proved, and ex­pects April-June growth will show "lim­ited" gains from Q1, which dis­ap­pointed with 4.92 per­cent. Q2 eco­nomic data will be an­nounced on Aug. 5. BI main­tained its full-year 2016 growth out­look at 5.0-5.4 per­cent. Juda Agung, BI ex­ec­u­tive direc­tor of eco­nomic and mon­e­tary pol­icy, said the bank still has room for fur­ther mon­e­tary loos­en­ing, but re­frained from cut­ting rates on Thurs­day be­cause BI's ear­lier rate cuts have pushed down com­mer­cial banks' de­posit and lend­ing rates.

"Look­ing ahead, we are as­sess­ing macroe­co­nomic sta­bil­ity and eco­nomic growth, but the room (for eas­ing) is still there," he told re­porters. RBS econ­o­mist Vanin­der Singh, who pre­dicted a cut on Thurs­day, said he still ex­pects 50 ba­sis points of re­duc­tion by year-end as there's been a "sharp re­duc­tion" in In­done­sia's do­mes­tic and ex­ter­nal vul­ner­a­bil­i­ties.

Be­fore Thurs­day, BI trimmed its main pol­icy rate four times by a to­tal 1 per­cent­age point, cut banks' re­serve re­quire­ment ra­tio twice and ad­justed lend­ing rules to pro­vide com­mer­cial banks more liq­uid­ity.

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