[JAKARTA] Indonesia's central bank left its benchmark interest rate unchanged for a second straight month, with Governor Perry Warjiyo defending the bank's independence amid proposals to change its mandate.
Bank Indonesia held the seven-day reverse repurchase rate at 4 per cent on Thursday, as expected by 27 of 29 economists in a Bloomberg survey. The other two predicted a 25 basis-point cut following 100 basis points of reductions so far this year already.
Policy makers are having to balance providing more stimulus against the risk of further weakening the rupiah, which is already down more than 6.6 per cent against the dollar this year, the worst performer in Asia. The currency has recently come under pressure after a draft bill was circulated in parliament calling for changes to the central bank that would effectively dilute its autonomy.
Mr Warjiyo made the case that all of the central bank's policies have been aimed at encouraging growth, while it's stepping up cooperation with the government to ensure stability. The president and finance minister have made clear that Bank Indonesia will remain independent, he said.
Aside from conventional easing, the central bank has reduced the reserve ratio requirement for banks to boost lending and begun buying bonds directly from the government to finance the widening budget deficit.
"Liquidity conditions remain ample but as Bank Indonesia notes, monetary expansion is largely stuck in the banking sector," said Mitul Kotecha, senior emerging-markets strategist at TD Securities in Singapore. "As such the issue is not lower rates, but monetary transmission." With virus cases escalating in Indonesia, and Jakarta reimposing partial lockdown measures, the growth outlook for Southeast Asia's biggest economy is dimming. Along with subdued inflation, that could give Bank Indonesia space to resume rate cuts in coming months.