August 20, 2019 / 4:10 AM / 6 months ago

Indonesia central bank seen holding key rate on Thursday, cutting later - Reuters poll

JAKARTA (Reuters) - Indonesia’s central bank will keep its key rate on hold on Thursday, a Reuters poll showed, as recent market volatility rooted in worries about global growth likely will delay further cuts on top of the one in July to try to lift growth.

FILE PHOTO: Logo of Indonesia's central bank, Bank Indonesia, as seen in Jakarta, Indonesia January 19, 2017. REUTERS/Fatima El-Kareem

In the poll, 17 of 19 economists said they expect Bank Indonesia (BI) to stand pat and keep its 7-day reverse repurchase rate IDCBRR=ECI at 5.75%.

The other two predicted the central bank would follow July’s 25-basis-point (bp) cut with a second trim of the same size, bringing the benchmark to 5.50%.

The cut announced on July 18 was the first in nearly two years, and immediately afterwards, Governor Perry Warjiyo said room remained for more accommodative monetary policy, hinting at further cuts.

However, Indonesian financial markets have been hit this month as jittery investors worried about broader tensions between Washington and Beijing, a potential currency war as well as the plunge of Argentinian peso and an inverted yield curve in the United States.

On Aug. 6, the rupiah IDR= touched 14,350 to the dollar, more than 3% weaker than its July peak. Since then, it has regained some ground and on Tuesday morning was trading at 14,255 a dollar.

While July’s inflation rate remained inside BI’s target band, trade returned to a deficit last month.


In a note last week, Nomura analysts said the trade deficit and greater uncertainty about the global environment strengthen its view BI “is unlikely to rush into another policy rate cut and that the easing cycle will be more calibrated than in the past.”

BI will resume easing in the fourth quarter, Nomura said.

J.P. Morgan, anticipating that the Federal Reserve will cut U.S. rates again next month, predicted BI will follow suit with a 25 bp cut at its September meeting, which concludes hours after the Fed’s.

Last year, amid capital outflows linked to U.S. monetary tightening and the trade war, BI raised the key rate six times by 175 basis points.

Senior BI officials favour looser monetary policy to unwind some of 2018’s tightening and support GDP growth, which in the second quarter slipped to 5.05%, the weakest in two years.

Destry Damayanti, who became BI senior deputy governor this month, forecast a prolonged monetary easing, citing the global economic slowdown as a reason. Thursday is her first policy meeting as a member of the board of governors.

Another deputy governor, Dody Budi Waluyo, told Reuters on Aug. 8 that BI is set to cut the benchmark again once markets are stable.

Polling by Tabita Diela; Writing by Gayatri Suroyo; Editing by Richard Borsuk

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