May 18, 2017 / 8:58 AM / 4 months ago

Indonesia central bank stands pat, keeps wary eye on a range of risks

The logo of Indonesia's central bank, Bank Indonesia, is seen on a window in the bank's lobby in Jakarta, Indonesia September 22, 2016. REUTERS/Iqro Rinaldi/File Photo - RTX318ZS

JAKARTA (Reuters) - Indonesia’s central bank, wary of risks including a “big chance” U.S. interest rates will rise in June, on Thursday kept its benchmark where it has been since October and its monetary policy neutral.

Bank Indonesia (BI) held the 7-day reverse repurchase rate IDCBRR=ECI steady at 4.75 percent, as predicted by 19 of 20 analysts in a Reuters poll.

The central bank also kept the deposit facility IDCBID=ECI and lending facility IDCBIL=ECI rates, the floor and ceiling of the overnight interbank money market, unchanged at 4.00 percent and 5.50 percent, respectively.

BI Governor Agus Martowardojo said 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.

Annual inflation, which reached 4.17 percent last month, is “manageable” and inside its target for the year of 3-5 percent, Martowardojo said.

He also said there’s a “big chance” of a Fed hike next month and a probability the U.S. central bank will hike again in September.

AN EASY DECISION

Thursday’s 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 improving, 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.

Capital Economics said that 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.

In the first quarter, Southeast Asia’s largest economy grew 5.01 percent 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 expects second quarter growth of around 5.1 percent, and 2017 full-year growth at the midpoint of its 5.0-5.4 percent 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.

Additional reporting by Hidayat Setiaji and Fransiska Nangoy; Editing by Richard Borsuk

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