In­done­sia cen­tral bank keeps key rate un­changed

The Pak Banker - - FRONT PAGE - JAKARTA -AFP

In­done­sia's cen­tral bank kept its pol­icy in­ter­est rate un­changed on Wed­nes­day, pri­ori­tis­ing mar­ket sta­bil­ity but loos­ened some lend­ing rules to spur con­sump­tion in the pan­demic-hit econ­omy.

The de­ci­sion came after South­east Asia's big­gest econ­omy shrank 5.32% in the se­cond quar­ter, steeper than ex­pected, and amid a ris­ing num­ber of coro­n­avirus cases in the coun­try.

Bank In­done­sia (BI) kept the 7-day re­verse repur­chase rate at 4.00%, al­ready the low­est since at least 2016, when it started us­ing the rate as its bench­mark, as ex­pected by the ma­jor­ity of economists in a Reuters poll.

BI has trimmed the key rate four times this year, to­talling 100 ba­sis points (bps), in re­sponse to the pan­demic. These have come on top of cuts to­talling 100 bps in 2019 to sup­port eco­nomic growth.

On Wed­nes­day, the cen­tral bank re­moved loan down­pay­ment re­quire­ments for pur­chases of en­vi­ron­men­tally-friendly ve­hi­cles, ef­fec­tive Oct 1, for lenders with low non-per­form­ing ra­tio lev­els. Pre­vi­ously, the down­pay­ment was 5-10%.

"We be­lieve that quan­ti­ta­tive mea­sures are more ef­fec­tive to sup­port eco­nomic re­cov­ery. In what way? Mon­e­tary eas­ing through the bank­ing sys­tem," Gov­er­nor Perry War­jiyo told an on­line news brief­ing, while not­ing that keep­ing the bench­mark rate un­changed would main­tain an at­trac­tive spread for for­eign in­vestors.

War­jiyo said the cen­tral bank would mon­i­tor de­vel­op­ments in the econ­omy, the fi­nan­cial mar­kets and coro­n­avirus cases in its fu­ture mon­e­tary pol­icy re­view.

BI has so far in­jected 651.54 tril­lion ru­piah (1.4 tril­lion baht) of liq­uid­ity this year. It has also agreed with the govern­ment a 1.2 tril­lion baht fis­cal deficit fi­nanc­ing scheme that in­volves the cen­tral bank buy­ing 872 bil­lion baht of bonds while re­lin­quish­ing in­ter­est pay­ments.

Wisnu War­dana, an econ­o­mist with Bank Dana­mon in Jakarta, said BI was likely done with its rate cuts for the year, with the gov­er­nor's com­ments sig­nalling that pol­i­cy­mak­ers were com­fort­able with signs of eco­nomic re­cov­ery.

Cap­i­tal Eco­nom­ics' Alex Holmes, how­ever, said there could be fur­ther eas­ing ahead, with high-fre­quency data sug­gest­ing the re­cov­ery had started to stall, but "pro­vided the ru­piah does not see a re­newed bout of weak­ness".

The ru­piah, re­cently un­der pres­sure from global un­cer­tain­ties, gained 0.5% ver­sus the dol­lar, while the main stock in­dex ex­tended losses after the an­nounce­ment.

In­done­sia's coro­n­avirus case tally has reached 144,945, up 75% in around a month since BI's last meet­ing, while 6,346 peo­ple have died from the Covid-19 dis­ease.

The govern­ment has fore­cast a slight con­trac­tion or flat growth for the econ­omy this year, but some an­a­lysts be­lieve GDP will con­tract - the first time for the re­source-rich coun­try since the Asian fi­nan­cial cri­sis in 1998.

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