August 18, 2017 / 6:10 AM / a year ago

Indonesia's central bank seen holding key rate despite weak consumption: Reuters poll

JAKARTA (Reuters) - Indonesia’s central bank is expected to keep its benchmark interest rate unchanged on Tuesday despite sluggish private consumption that is denting economic growth, a Reuters poll showed.

People walks near the fountain of Indonesia's central bank, Bank Indonesia, in Jakarta, Indonesia January 19, 2017. REUTERS/Fatima El-Kareem

In the poll, 19 out of 20 analysts predicted that Bank Indonesia (BI) would hold the 7-day reverse repurchase rate IDCBRR=ECI at 4.75 percent, where it has been since October.

The other analyst forecast that BI would cut the key rate by 25 basis points.

On Wednesday, BI Governor Agus Martowardojo gave a hint of potential policy easing “if all indicators support it”. He said the central bank is “pretty happy” with the annual inflation rate, which was 3.88 percent in July.

But some analysts believe that a negative impact on the rupiah IDR= stands in the way of a rate cut. This year, the rupiah has strengthened about 0.8 percent against the dollar, less than most emerging Asian currencies have moved against the greenback.

“BI is set to reiterate its commitment to maintain financial system stability, and the rupiah (vs US dollar) in particular,” said Gundy Cahyadi, an economist at DBS Bank in Singapore.

In early August, Indonesia reported that gross domestic product grew 5.01 percent in the second quarter from a year earlier - less than forecast - as private consumption remained lethargic.

To try to lift the growth rate, BI in 2016 cut its benchmark rate six times, by a total of 1.50 percentage points. In spite of the cuts, lending has been increasing at a slower pace than the central bank wants, and the economic growth rate has remained around 5 percent instead of nearing the 7 percent level President Joko Widodo wants.

Eight of 10 analysts in the poll who gave a forecast for the benchmark interest rate at the end of 2017 see BI keeping it at 4.75 percent. The other two predicted a 25 basis point rate cut to 4.50 percent.

Polling by Nilufar Rizki, Shaloo Shrivastava in BENGALURU; Editing by Richard Borsuk

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