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Indonesia central bank flags possible monetary easing in June

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Indonesia's central bank may ease monetary policy again next month, its governor said on Wednesday, in a sign that policy makers are keen to stoke a slowing economy despite risks of capital outflows from further rate increases in the United States.

[JAKARTA] Indonesia's central bank may ease monetary policy again next month, its governor said on Wednesday, in a sign that policy makers are keen to stoke a slowing economy despite risks of capital outflows from further rate increases in the United States.

Governor Agus Martowardojo said that further easing would depend on stable economic conditions, but didn't elaborate on the conditions that may prompt it to act.

In the past policymakers have been reluctant to ease during times of stress in the rupiah currency. "If next month this condition can be maintained, supported by data, there is a possibility for monetary (policy) easing," Mr Martowardojo told reporters at a central bank event.

Policymakers' concerns about the economic outlook may have been heightened by a disappointing result in the first quarter, which forced the central bank to cut 2016 growth outlook to 5.0-5.4 per cent from 5.2-5.6 per cent last week.

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Bank Indonesia's next policy review begins on June 15 with a decision expected the next day. This would make it among the first central banks to announce its policy after the Federal Reserves concludes its meeting in June.

Hawkish comments from Fed officials, and solid data have seen markets placing a higher chance of a Fed rate increase next month, in turn putting pressure on the rupiah.

The rupiah, until recently Asia's second best performing currency, slumped to its weakest level in three months on Tuesday. The stock market has also weakened.

Martowardojo acknowledged that "a hawkish Fed statement will have an impact to the global financial market," but he said investors could also see some positive catalysts, including expectations that Britain will vote to stay in the European Union.

BI began an easing cycle early this year by cutting its benchmark rate three times, totalling 75 basis points, to spur economic growth. It has also reduced banks' reserve requirement ratio, effectively injecting trillions of rupiah into the financial system.

Gundy Cahyadi, DBS' economist in Singapore, said there are many ways to loosen policy and the governor's comments may not necessarily mean a June rate cut, noting BI's plans to ease loan restrictions for mortgages. "In fact, by tolerating a weak rupiah, BI has also continued to sustain its accommodative policy stance," he said.

BI has said its recent easings have been facilitated by benign inflation - tracking inside its 3-5 per cent target range - a relatively stable currency and a shrinking current account deficit.

REUTERS

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