Bank of Indonesia to hold rates until end of 2022 pending economic recovery

General view of Sudirman Central Business District (SCBD), following the coronavirus disease (COVID-19) outbreak, in Jakarta, Indonesia on February 5, 2021. REUTERS / Ajeng Dinar Ulfiana

BENGALURU, Oct. 15 (Reuters) – Indonesia’s central bank to keep interest rates stable next week to support the economy as activity stalled by recent devastating wave of COVID-19 gradually picks up , according to a Reuters poll of economists.

Since the start of the pandemic, the Bank of Indonesia (BI) has reduced its benchmark seven-day repo rate (IDCBRR = ECI) by 150 basis points to a record low of 3.50% and has injected cash worth over $ 57 billion.

The 29 economists expected the rate to remain stable at the end of BI’s October 18-19 policy meeting.

The median forecast of the poll, carried out over the past week, predicts that interest rates will remain at their current level of 3.50% until the third quarter of next year, increasing by 50 basis points last year. quarter 2022 at 4.00%.

“As long as inflation remains low and the currency remains broadly stable, they are happy to maintain favorable monetary policy in an attempt to stimulate the recovery,” said Gareth Leather, senior economist for Asia at Capital Economics.

Inflation, at 1.6% in September, has remained below the central bank’s target range of 2% to 4% since mid-2020 and is expected to remain subdued this year. But it is expected to increase next year, to 2.9%, then to 3.0% in 2023.

The Indonesian rupiah has remained broadly stable this year, down around 1% against a resurgent dollar. The recent rise in energy prices has also provided support, with Indonesia being a major exporter of raw materials.

The central bank has remained cautious, hoping to avoid any backdrafting of the US Federal Reserve’s plans to scale back its bond buying program, possibly starting next month. During the last Fed cut in 2013, the rupee depreciated by more than 20%.

“In 2013, it was one of five fragile currencies that were taken in a big sale,” Leather said.

“There are a whole bunch of differences (now) all suggesting that Indonesia won’t be as caught up as it did back then.”

Indeed, analysts say the Indonesian economy is on more solid footing. The current account deficit is relatively small, with an estimate of BI at 0.6% to 1.4% of GDP for 2021.

The trade surplus hit a record high in August at $ 4.7 billion, but is expected to narrow to $ 3.8 billion in September. Read more

Indonesia’s economy grew at the fastest pace in 17 years in the second quarter of this year, breaking a four-quarter streak of contraction following the pandemic.

But the build-up of optimism around the recovery was clouded by an outbreak in July – one of the worst outbreaks of COVID-19 in Asia – that forced authorities to reimpose restrictions.

Southeast Asia’s largest economy is expected to grow 3.2% in the just-ended quarter and 4.6% in it, according to the latest Reuters poll.

This is down from the 4.7% and 4.8% expected in the latest Reuters economic outlook survey conducted in July, at the time of the epidemic.

The economy is expected to grow 3.4% this year and accelerate to 5.1% in 2022. This forecast has been revised down from the previous forecast of 4.3% and 5.2% respectively. Growth is expected to remain stable at 5.1% in 2023, according to the survey.

“Consumption is expected to recover slowly as restrictions are relaxed, especially in 4Q21,” United Overseas Bank economists noted. “Investment is also expected to recover at a faster pace, supported by rising FDI and recent government efforts to relax trade licenses. “

(For other articles from Reuters Global Economic Survey)

Reporting by Shaloo Shrivastava; Poll by Md. Manzer Hussain and Devayani Sathyan; Editing by Ross Finley and Jonathan Oatis

Our Standards: Thomson Reuters Trust Principles.


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