March 4, 2020 / 11:17 AM / a month ago

UPDATE 1-Indonesia has "many instruments" to support growth amid virus spread

* Instruments BI can use include policy rates, RRR

* End-Jan FX reserves level “more than enough”

* BI’s baseline scenario is for “mild” virus impact (Adds direct quote, context, changes slug)

By Gayatri Suroyo and Ed Davies

JAKARTA March 4 (Reuters) - Indonesia’s central bank has “many instruments” it can use to prop up growth in Southeast Asia’s biggest economy, amid the risk of slowdown due to the spread of coronavirus, Governor Perry Warjiyo said on Wednesday.

Warjiyo made the remarks in response to a question on whether Bank Indonesia (BI) had room to lower borrowing costs further after the Federal Reserve cut interest rates by 50 basis points to blunt the impact of the virus on the U.S. economy.

BI cut its benchmark policy rate last month, its fifth reduction since May, in response to the virus outbreak in China, Indonesia’s biggest trade partner and a major source of investment and tourists.

“Our stance is clear, all measures are directed to support economic growth. But don’t compare us with (central banks in)developed countries,” Warjiyo told a media forum.

“They only have interest rates as their monetary instrument, we have interest rates, reserve requirement ratios, the exchange rate,” he said, adding BI had scope to ease its “many instruments” to aid growth if needed at its March 18-19 meeting.

Earlier on Wednesday, Finance Minister Sri Mulyani Indrawati said investors were likely to get back into assets in countries with good economic prospects following the Fed rate cut, including Indonesia.

Indonesian financial markets have rebounded in recent days after stocks, bond prices and the rupiah exchange rate plunged last week amid outflows spurred by the coronavirus outbreak.

Indonesia had “more than enough” foreign exchange reserves to maintain market stability, the governor said.

Reserves as of the end of January stood at $131.7 billion, close to a record high and 20% more than a standard set by the International Monetary Fund to cover imports, offshore debt payments and capital reversal risks, Warjiyo said.

There have been more than 90,000 confirmed cases globally of coronavirus, including two in Indonesia, but Warjiyo predicted a “mild effect” on Indonesia’s economy.

BI’s baseline scenario is for economic growth dipping to 4.9% in the first quarter, then improving to near 5% in the second quarter, and then 5.1% and 5.2% in subsequent quarters.

The numbers are based on the virus slicing 0.4 percentage point off China’s 2020 GDP growth, resulting in a 0.2 percentage point reduction in global growth, as well as some direct impact on Indonesia’s tourism, trade and investment.

Indonesia’s GDP growth last year was 5.02%, the weakest since 2016.

The worst impact on the economy would likely be felt from February to March, but a recovery would start in April, he said.

“It depends on the spread of the coronavirus. It will spread less in places that are getting warmer. That’s why in the West ... and in Asia, activity will start to pick up in April,” he said. (Reporting by Gayatri Suroyo and Ed Davies; Editing by Alex Richardson)

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