JAKARTA (Reuters) – A small majority of analysts expect Indonesia’s central bank to keep its policy rate on hold on Tuesday, as it tries to maintain stability in its currency and capital markets amid pressures from the coronavirus outbreak, a Reuters poll found.
Fifteen of 28 analysts in the poll predicted Bank Indonesia (BI) would leave the 7-day reverse repurchase rate
BI had trimmed the benchmark rate twice this year in response to the outbreak, or six times in the current easing cycle that began in 2019, unwinding a total of 150 bps.
The central bank has also slashed its forecast for 2020 GDP growth three times as Southeast Asia’s largest economy confronts a slowdown in global demand from trade tensions and economic impact of the COVID-19 respiratory disease.
BI now expects the economy to grow 2.3% this year, sharply down from a range of 5.1%-5.5% predicted earlier and compared with 5% growth in 2019 as the coronavirus pandemic upends lives, businesses and disrupts global supply chains, threatening a global recession.
“Since we have yet to gauge how far the pandemic will affect our overall economy, preserving ammunition in the form of the policy rate might come in handy,” said Wisnu Wardana, an economist with Bank Danamon in Jakarta.
Governor Perry Warjiyo told an online media briefing last week that even though BI has room for further cuts, it would be “very careful” and would prioritise the rupiah’s stability.
The rupiah
The currency recovered recently after the government sold U.S. dollar bonds of $4.3 billion and BI announced a $60 billion repo line with the U.S. Federal Reserve.
Warjiyo, who has been speaking to the public and holding conference calls with investors at least twice a week to shore up confidence, said the rupiah’s exchange rate remained undervalued.
Fiscal authorities have also stepped up their response to the outbreak by shifting spending dramatically to healthcare and welfare programmes, expanding the budget deficit to the widest in at least a decade.
Rini Sen, an economist with ANZ Bank who predicted a cut of 25 bps, said BI may want to provide further support to complement the government’s fiscal stimulus.
“With inflation largely relegated to the background, BI will step in to support waning growth, especially after the official growth forecast was revised sharply lower last week,” she wrote in a note.
The median of a smaller pool of analysts in the survey who gave longer term views was for the benchmark rate to be at 4.00% by the end of the third quarter, which would be a new low.
(Polling by Tabita Diela in Jakarta, Shaloo Shrivastava, Khusboo Mittal, and Richa Rebello in Bengaluru; Writing by Gayatri Suroyo; Editing by Jacqueline Wong)
