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UPDATE 1-Indonesia c.bank holds rates, but sees bigger easing chance despite Fed
December 17, 2015 / 12:20 PM / 2 years ago

UPDATE 1-Indonesia c.bank holds rates, but sees bigger easing chance despite Fed

* Benchmark rate kept at 7.50 pct, level since Feb

* Fed may hike rate 100 bps in 2016 - C.bank

* Rupiah bucks regional trends, strengthens on Thurs

* C.bank says it will weigh easing moves in Jan

By Hidayat Setiaji and Nilufar Rizki

JAKARTA, Dec 17 (Reuters) - Indonesia’s central bank held its benchmark interest rate unchanged on Thursday, as expected, but raised the possibility of a cut in January after the country’s markets took in their stride the Federal Reserve’s first rate hike in nearly a decade.

Bank Indonesia (BI), one of the first central banks to meet after the Fed’s lift-off, said the room to ease “is more open” than previously as macroeconomic conditions are improving.

The central bank left the key rate at 7.50 percent, where it’s been since February.

Rangga Cipta, economist at Samuel Sekuritas in Jakarta, said that BI “may start to ease in January, especially after seeing global reaction after the Fed hike is all good here”.

BI has come under pressure from Vice-President Jusuf Kalla to cut the benchmark to aid the weakest growth in six years, but it has maintained that the priority is promoting stability and aiding the rupiah, which has weakened almost 12 percent against the dollar this year.

Some analysts have worried that as soon as Fed hikes begin, Indonesia could see capital outflows that further hurt the rupiah.

But on Thursday, the rupiah bucked the trend in much of Asia and rose 0.4 percent, ending the day at 14,005. The stock market benchmark rose 1.6 percent.

BI’s policy announcement came after Jakarta markets were closed for the day.

THE DOOR OPENS?

Capital Economics said it expects the rupiah to stabilise against the dollar in the coming year, and a more stable rupiah “should open the door for BI to cut interest rates”.

Juda Agung, BI’s executive director for monetary and economic policy, said it could ease policy “through a quantitative move or through interest rate. Both will be under our consideration in January.”

For sure, the central bank sees plenty of external risks to keep monitoring. It cited China’s economic slowdown as one, and Agung said the Fed might raise its main rate by 100 basis points in 2016.

In November, BI cut banks’ reserve requirement ratio, an easing move intended to free up some liquidity in the market. It refrained from cutting the main rates to avoid triggering outflows.

Pressure on Indonesia from inflation has fallen significantly. Earlier this year, the annual rate was above 7 percent and BI now expects it to be below 3 percent at the end of the year.

Indonesia’s 2015 economic growth is expected to be 4.8 percent, the lowest since 2009. BI said growth should pick up next year to 5.2-5.6 percent.

Additional reporting by Gayatri Suroyo; Editing by Richard Borsuk

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