Indonesian bank remains on hold, says rates still move in a year
(Bloomberg) – Indonesia’s central bank has left its benchmark interest rate unchanged and expanded policies to stimulate domestic demand, saying it will likely not change rates for another year.
Bloomberg’s Most Read
The Bank of Indonesia on Tuesday kept the seven-day repo rate at an all-time high of 3.5%, as predicted by 30 analysts in a Bloomberg survey. It was the eighth consecutive blocking decision by the bank.
âThis year’s interest rates will remain low and liquidity will remain loose. Next year the interest rate will also remain low for most of the year and we will start to reduce liquidity bit by bit, âGovernor Perry Warjiyo said at a briefing in Jakarta. “It is likely that in the fourth quarter of 2022, we will be thinking about interest rates.”
Southeast Asia’s largest economy is seeing the first signs of recovery from the ravages of the delta variant of the coronavirus, with rebounds seen in manufacturing and consumer confidence. Indonesia has also reopened its borders to revive tourism, allowing foreign visitors to be vaccinated to certain destinations including Bali.
Warjiyo announced that the central bank was easing down payment rules for home and auto loans until the end of 2022 and extending a stimulus program for credit card repayments, measures designed to increase the effects of its monetary policy. accommodating.
“Overall, next year most of our instruments will still be aimed at supporting growth,” said the governor, even as inflation pushes some central banks around the world to start tightening their policies.
The rupee strengthened 0.2% on Tuesday to 14,076 against the US dollar. Indonesia’s benchmark stock index recovered from earlier losses after the decision and was almost stable on that day.
What Bloomberg Economics Says …
“Stable rates may be the optimal choice as the central bank will have to continue to navigate competing concerns – below-average domestic demand, vulnerability of the rupee, and mounting price pressures. By the second half of this year. 2022, the pressure to raise the policy rate is likely to be acute, in our view, especially if the Federal Reserve unexpectedly advances the start of its rate hikes. “
Tamara Mast Henderson, Asean economist
Click here to read the full note
Bank Indonesia “has signaled its intention not to get caught up in the recent hawkish trend of more and more central bank counterparts, and to maintain its holding position for a while,” said Wellian Wiranto, economist at Oversea-Chinese Banking Corp in Singapore. âLooking at next year, we see that BI will continue to have the option of keeping its key rate unchanged in the first half, but the risk of a stronger drumbeat for a Fed funds rate hike in the second. semester might become more difficult to rule out. “
Soaring commodity prices are helping Indonesia, a major exporter of coal and palm oil. A lower than expected current account deficit and high foreign exchange reserves should support the rupee, which became Asia’s best-performing currency in the second half of the year, gaining 3%.
âIt’s hard to stress how perfectly the stars have aligned for Bank Indonesia. The energy price crisis and the commodity boom are a blessing for Indonesia, âsaid Joseph Incalcaterra, Asean economist at HSBC Holdings Plc in Hong Kong. âThis gives BI unprecedented flexibility to avoid premature tightening. “
Still, the rupee could face headwinds as the US Federal Reserve moves closer to curtailing its asset purchases in the era of the pandemic. Foreign funds sold $ 1.3 billion worth of Indonesian sovereign bonds last month, the most since March 2020, although the central bank said earlier this month that the selling pressure was temporary.
Other points of the briefing:
The central bank kept its forecast for economic growth of 3.5% to 4.3% this year
Average inflation this year is expected to be below the midpoint of the 2% to 4% target range
Core inflation remains low, in line with weak domestic demand
Indicators like manufacturing PMI, retail sales, consumer confidence and payment transactions show the economy is gaining ground
Current surplus expected for the third quarter
The current account is expected to show a deficit of 0% to 0.8% of GDP for the full year – narrower than the 0.6% to 1.4% deficit previously forecast – and show a small deficit in 2022 as well.
Demand for business and consumer loans is improving, with loan growth expected to reach 4-6% this year
(Add a quote from Warjiyo in the third paragraph, an analyst quote in the 10th paragraph.)
Bloomberg Businessweek Most Read
Â© 2021 Bloomberg LP