May 6, 2020 / 4:41 AM / 2 months ago

UPDATE 1-Indonesia pledges liquidity support, cautions on rate cut as economy slows

* Gov says interest rate policy’s priority is rupiah stability

* 2020 GDP growth may be below 2.3% - governor

* BI has cut rates twice in 2020, injected $33 bln of liquidity (Adds more quote from governor, context)

By Tabita Diela and Gayatri Suroyo

JAKARTA, May 6 (Reuters) - Indonesia’s central bank chief pledged on Wednesday to provide as much liquidity as needed to support an economy that last quarter grew at its slowest in 19 years, but hinted that keeping the rupiah currency stable might prevent an early interest rate cut.

“Our stance remains loose,” Governor Perry Warjiyo told an online news conference. “But for the short term, interest rate policy’s priority is the rupiah’s stability, although we understand there is room to lower the (benchmark) rate.”

BI has cut so far cut its benchmark 7-day reverse repurchase rate twice this year to help the economy weather the coronavirus pandemic, having already cut four times in 2019.

The central bank refrained from making a third cut at its April meeting, citing high global uncertainty affecting the rupiah.

The rupiah remained emerging Asia’s worst performing currency so far this year despite some recent appreciation. It traded at 15,080 a dollar at 0405 GMT on Wednesday, down sligthly from the previous day’s closing.

Warjiyo’s comment came a day after data showed Southeast Asia’s largest economy grew 2.97% in January-March, the weakest since 2001 and below the central bank’s forecast, as consumption and investment took a bigger hit than expected due to the virus outbreak.

Some analysts predicted BI would make more rate cuts in response to the GDP data.

Separately, a central bank survey released on Wednesday showed the lowest consumer confidence level in 12 years, adding to economic indicators that suggest further slowdown in coming quarters.

Warjiyo said the first quarter data meant the full-year GDP growth would likely come in below BI’s earlier estimate of 2.3%.

BI maintained its outlook for growth in the second quarter through to the fourth at 0.4%, 1.2% and 3.1%, respectively, he said.

All of BI’s instruments but the policy rate would be geared towards cushioning the pandemic’s economic impact, Warjiyo said, singling out its liquidity injection as the most effective tool for now to prop up growth.

BI has injected 503.8 trillion rupiah ($33.32 billion) of liquidity into the financial system so far, in operations Warjiyo called “quantitative easing” that include cuts in banks’ required reserves and BI’s purchase of government bonds.

“BI has increased banks’ liquidity, which, God willing, should be enough to fund programmes on economic recovery and for small and medium enterprises,” Warjiyo said.

“We will assess further whether this is enough or whether BI needs to increase the liquidity even more,” he added.

$1 = 15,095.0000 rupiah Additional reporting by Fransiska Nangoy; Editing by Simon Cameron-Moore

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