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Indonesia central bank likely to cut rates again to shore up economy

Selasa, 17 September 2019 / 13:30 WIB
Indonesia central bank likely to cut rates again to shore up economy
ILUSTRASI. Logo Bank Indonesia

Sumber: Reuters | Editor: Wahyu Rahmawati

KONTAN.CO.ID - JAKARTA. Indonesia's central bank is expected to cut its benchmark rate on Thursday, for the third meeting in a row, to support growth, a small majority of economists forecast in a Reuters poll.

Out of 21 economists surveyed in the past week, 13 predicted Bank Indonesia (BI) will trim its 7-day reverse repurchase rate by 25 basis points (bps) to 5.25% this week, bringing this year's total easing to 75 bps.

The other eight economists expected the central bank to stand pat.

BI's policy meeting will conclude hours after the U.S. Federal Reserve meets, in which it is expected to cut rates again, following last week's easing by the European Central Bank. The Bank of Japan could also ease policy at its meeting on Thursday.

"Simply put, all signs call for cuts," Joseph Incalcaterra, an HSBC economist said in a note titled "Bank Indonesia Watch: Still room to front-load" last week.

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He cited improving investor sentiment for risky assets, the then-stronger rupiah, weak domestic growth and the government's reform momentum as reasons for another cut.

Analysts had predicted July's cut was the beginning of an easing cycle to unwind the central bank's tightening in 2018.

BI was among the most aggressive emerging market central banks last year when it raised interest rates by 175 bps to halt capital outflows related to U.S. monetary tightening and the U.S.-China trade war that had pressured the rupiah.

This year, the central bank and government officials have expressed concerns about the global economic slowdown, saying policies should be aimed at supporting Indonesia's GDP expansion.

At its August meeting, Governor Perry Warjiyo signalled the central bank's willingness to ease policy further by saying the cuts would be followed by "an accommodative policy mix".

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BI's Deputy Governor Dody Budi Waluyo told reporters earlier this month, Southeast Asia's largest economy may grow only 5% this year, below an earlier estimate of 5.1%.

However, a key factor to Thursday's decision is the rupiah's stability, many economists have said, and the currency has lost its footing this week, weakening 1.4% since its previous peak at 13,900 per dollar on Sept. 13.

Nomura, who estimated BI will stay on hold, said the central bank's emphasis on policy mix "suggests that it may consider options such as more macroprudential measures instead of reducing the policy rate further" this week.


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