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UPDATE 1-Indonesia c.bank holds key rate, says room for easing 'not too wide'
February 16, 2017 / 11:14 AM / 6 months ago

UPDATE 1-Indonesia c.bank holds key rate, says room for easing 'not too wide'

* BI benchmark rate kept at 4.75 pct, as expected

* C.bank says economic indicators are strong

* Loan growth slows in Dec, despite past rate cuts

* Governor: Policy remains 'cautiously accommodative'

By Hidayat Setiaji and Gayatri Suroyo

JAKARTA, Feb 16 (Reuters) - Indonesia's central bank kept its key interest rate unchanged on Thursday and said monetary policy remains "cautiously accommodative" though it is keeping an eye on inflation pressures.

Bank Indonesia (BI) kept its benchmark policy rate at 4.75 percent, as predicted by all 20 analysts surveyed in a Reuters poll.

BI has been hoping a series of monetary policy easings last year, including six rate cuts totalling 150 basis points, will boost lending and growth this year.

Governor Agus Martowardojo told reporters on Thursday that room now for further easing is "not too wide", citing global risks.

Economic growth last year was 5 percent, as BI predicted, but the fourth quarter pace was slightly below expectation.

The central bank said it now expects 2017 growth of slightly below the midpoint of its 5.0-5.4 percent range.

"The case for monetary easing has weakened amid expectations of firmer domestic demand, higher inflation, and normalisation of U.S. rates," ANZ said, adding that it continues to expect BI to hold the key rate throughout 2017.

Prior to Thursday, Martowardojo said the central bank this year will ease rules on how banks manage reserve requirement ratios on a day-to-day basis, which could provide banks with more liquidity for credit, possibly lifting the growth rate.

FACING SOME HEADWINDS

Strong January trade data, announced earlier on Thursday, showed good prospects this year, but Southeast Asia's largest economy still faces some headwinds.

Loan growth continues to be sluggish, even after all the 2016 rate cuts. In December, loans grew 7.9 percent from a year earlier, a slowing from November's 8.5 percent increase.

Some analysts said uncertainty stemming from a heated, contentious election for governor of Jakarta could dent growth. A private quick count Wednesday's vote indicated there will need to be run-off election in April.

A growing number of analysts are now saying BI's next interest rate move might be a raise, due to higher inflation projection and anticipated U.S. interest rate hikes by the Federal Reserve.

Annual inflation in January was 3.49 percent, and BI has said it may top 4 percent later this year. On Thursday, it reiterated its belief that inflation in 2017 will remain in its 3-5 percent target range.

The rupiah has strengthened 1.1 percent this year against the dollar, following a 2.6 percent appreciation during 2016.

But despite that and favourable portfolio inflows into the country, Natixis economist Trinh Nguyen said BI is "unlikely to take chances and cut rates", due to external factors beyond Indonesia's control. (Additional reporting by Nilufar Rizki and Fransiska Nangoy; Editing by Richard Borsuk)

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