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UPDATE 1-Indonesia c.bank gov says recent benchmark rate cuts "sufficient"
September 29, 2017 / 7:36 AM / 3 months ago

UPDATE 1-Indonesia c.bank gov says recent benchmark rate cuts "sufficient"

* BI sees Sept y/y inflation at 3.6 pct, vs 3.82 pct in Aug

* Key policy rate was cut twice by 50 bps, in Aug and Sept

* Some analysts had predicted more cuts (Adds details, policy context)

By Hidayat Setiaji

JAKARTA, Sept 29 (Reuters) - Indonesia’s central bank governor said on Friday that two cuts in its benchmark rate in the last two months are “sufficient”, signalling it may pause its surprise burst of policy easing.

Bank Indonesia (BI) surprised markets twice in a row in August and September by cutting its key rate by a total of 50 basis points (bps) to spur economic growth.

There was some chatter in the market the central bank could ease again, as the BI had predicted that inflation will remain well within its comfort range of 3-5 percent and expected the rupiah to stay stable.

However, when asked if BI could respond to a lower September inflation reading by cutting the key rate again, Governor Agus Martowardojo told reporters: “I think (the rate cuts are) sufficient”.

He also brushed off worries about the rupiah after the currency touched a 10-month low against the dollar on Thursday, saying all global developments had been anticipated.

The benchmark 7-day reverse repurchase rate is now 4.25 percent. BI next meets to determine its policy on Oct. 18-19.

Martowardojo estimated the country’s annual inflation rate would ease to 3.6 percent in September from 3.82 percent a month before. BI’s projection was close to the median forecast of a Reuters poll of 3.67 percent.

Southeast Asia’s largest economy grew 5.01 percent on a yearly basis in the second quarter, weaker-than-expected, blunted by sluggish household consumption, the biggest contributor to the GDP.

Some banks and research houses, including the Asian Development Bank, has said BI has room to lower its key policy rate once more this year by another 25 bps to further aid growth.

Martowardojo said growth would improve in the third quarter, with all components already showing “positive development”.

BI is still reviewing details for other forms of monetary policy easing, including changing lending and liquidity rules for commercial banks, Martowardojo said.

Home loan downpayment rules would be applied differently by regions depending on each region’s demography, he said.

On liquidity rules, he said banks would be allowed to include non-bank corporate bonds that have good ratings for the calculation of loan-to-funding ratio.

“The aim of these measures are to reflect banking intermediary efforts,” he said.

Reporting by Hidayat Setiaji; Writing by Gayatri Suroyo; Editing by Kim Coghill & Shri Navaratnam

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