(Adds cenbank governor comment, details)
* Key rate kept at 4.50%, expected by 10 of 26 analysts
* BI has cut rates twice year to date
* Banks have $38 bln in bonds they can repo to BI - gov
By Gayatri Suroyo and Tabita Diela
JAKARTA, May 19 (Reuters) - Indonesia’s central bank kept its policy rate steady on Tuesday to bolster market stability, but pledged to maintain ample cash in the financial system and said there was room to cut rates in the future to cushion Southeast Asia’s biggest economy. The move to leave Bank Indonesia’s 7-day reverse repurchase rate unchanged at 4.50% was a surprise with 16 out of 26 analysts in a Reuters poll expecting a 25-basis point cut.
BI has cut the rates twice this year to stimulate economic activity hurt by the coronavirus pandemic, on top of four reductions in 2019.
“This decision took into account the need to maintain foreign exchange stability amid global financial market uncertainty,” Bank Indonesia (BI) Governor Perry Warjiyo told a news conference.
But he said there was still “room for interest rate cuts in line with low inflation and the need to support economic growth, especially in 2020.”
A key message from Warjiyo was that BI would ensure enough liquidity in the financial system and commercial banks still had 563 trillion rupiah ($38.17 billion) in bonds they can sell in repurchase transactions to the central bank, he said.
Central banks around the world have provided, in some cases, unprecedented amounts of stimulus to help soften the blow to the world economy from the pandemic and keep markets functioning.
Indonesia’s rupiah firmed slightly after the announcement to trade at 14,750 per dollar.
The decision comes after data showed earlier this month that Indonesia’s gross domestic product expanded 2.97% on-year in January-March, the weakest since 2001.
Warjiyo said 2020 GDP growth would likely come in below BI’s earlier forecast, but a rebound is expected next year. BI’s 2020 forecast was previously 2.3%.
The government on Monday expanded its stimulus programme to $43 billion to provide, among other things, more tax breaks and bailouts for state firms.
Consultancy Capital Economics said BI would “need to reverse course soon” and resume cutting rates due to the “very poor” economic outlook, although it noted the rupiah’s move may determine the pace and timing of such easing.
On top of rate cuts, BI has also injected 583.5 trillion rupiah of liquidity into the financial system, partly through its unconventional policy of direct purchases of sovereign bonds in auctions, the governor said.
$1 = 14,750.0000 rupiah Reporting by Gayatri Suroyo and Tabita Diela; Additional reporting by Fransiska Nangoy; Editing by Ed Davies and Jacqueline Wong