BI leaves key rates unchanged
JAKARTA: Indonesia’s central bank, wary of risks including a “big chance” US interest rates will rise in June, yesterday kept its benchmark where it has been since October and its monetary policy neutral.
Bank Indonesia (BI) held the seven-day reverse repurchase rate steady at 4.75%, as predicted by 19 of 20 analysts in a Reuters poll.
The central bank also kept the deposit facility and lending facility rates, the floor and ceiling of the overnight interbank money market, unchanged at 4% and 5.50%, respectively.
“The central bank still eyes for a chance to cut the benchmark, although its current focus is on inflation management and monitoring global risks, including Federal Reserve hikes and tension in the Korean peninsula,’’ governor Agus Martowardojo said.
“Annual inflation, which reached 4.17% last month, is manageable and inside its target for the year of 3-5%,’’ he said. “There’s a big chance of a Fed hike next month and a probability the US central bank will hike again in September. ‘’
The decision by BI to stand pat “was an easy one”, said Trinh Nguyen, senior Asia economist of Natixis Asia in Hong Kong.
“Although exports are i mproving, domestic demand remains weak. With inflation higher and the Fed hiking rates soon, BI is likely to maintain the current stance to shelter the greenshoots of the economy,” she said.
“Despite the economy’s poor outlook, a rate cut is unlikely this year, partly because of anticipated hikes by the Fed and the possibility Indonesian inflation — at a 13-month high in April — will go higher,’’ Capital Economics said.
In the first quarter, Southeast Asia’s largest economy grew 5.01% from a year earlier.
That was broadly in line with market expectation and a touch stronger than the previous quarter, but showed authorities are struggling to get growth rates to significantly rebound.
Some analysts say exports, the main driver behind the first quarter’s slightly higher growth, may not be able to generate further gains, given uncertainty about commodity prices and demand from trading partners.
BI said it expected second-quarter growth of around 5.1%, and 2017 full-year growth at the midpoint of its 5.0-5.4% target range.
Between January and October 2016, the central bank cut the benchmark rate six times, by a total 1.5 percentage points, to try to lift growth.
Bank Indonesia also said yesterday that loans extended by local banks grew 9.2% in March from a year earlier, accelerating from February’s 8.6 percent pace.
The banking industry’s ratio of nonperforming loans fell in March to 3.0% of outstanding credits from 3.2% the previous month, the central bank said.
Martowardojo described the acceleration as still not optimal considering the central bank’s past monetary easing, which includes six benchmark rate cuts by a total of 150 basis points in 2016.