Indonesia central bank expected to hold policy rate after 4 successive cuts: poll

[JAKARTA] Indonesia's central bank is expected to stand pat on Thursday to assess the effects of monetary loosening after cutting interest rates four times since July, a Reuters poll showed on Monday.

Bank Indonesia (BI) has cut its benchmark seven-day reverse repurchase rate by a total of 100 basis points (bps) in back-to-back meetings as "pre-emptive measures" to avoid a sharp downturn amid a global economic slowdown.

Twenty of 24 analysts in the poll predicted BI would keep the key rate unchanged this week at 5.00 per cent, while four forecast another 25 bp cut to bolster growth, which slid to the weakest in more than two years in the third quarter.

Consultancy Capital Economics said BI's decision this week was "likely to be a close call".

"Admittedly, there are a couple of good reasons why the central bank could still decide to cut," it said, citing its own model that suggested an even weaker economy than presented by the Indonesian government.

"On balance, however, we think the central bank will want to take some time to evaluate the impact of the recent rate cuts."

South-east Asia's largest economy grew 5.02 per cent in the third quarter, with growth in household consumption - accounting for more than half of GDP (gross domestic product) - easing slightly. Private consumption, investment and public spending weakened, while exports were flat and imports plunged.

Nomura, among a minority predicting a rate cut, said its forecast was based on data since the previous BI meeting showing a small trade surplus in October, lower headline inflation, weaker domestic demand and a narrowing current account deficit, among other indicators.

Nomura also noted BI emphasised a dovish stance after last month's rate cut, which was further reinforced by deputy governor Dody Budi Waluyo's comments to lawmakers last week, in which he said current economic data still allows for an accommodative monetary policy.

BI's easing cycle has unwound some of the 175 bps in rate increases it made in 2018, when it moved to defend the falling rupiah amid US monetary policy tightening.

Analysts are divided over how long the current easing cycle will last, though most agree that it is nearing its end.

"The bigger question is whether monetary policy easing will help lift Indonesia's growth," ANZ's Krystal Tan said, arguing that policy pass-through may be constrained by banks' stretched loan-to-deposit ratio and compressed margins.

President Joko Widodo earlier this month urged bank executives to follow BI's lead by cutting loan rates. But even before BI began its easing cycle, bankers had already warned that tight liquidity and weak profitability could prevent them from lowering their rates, complicating BI's policy transmission.

REUTERS