December 19, 2019 / 8:45 AM / a month ago

UPDATE 1-Indonesia c.bank holds rates, easing cycle seen continuing in 2020

(Adds details, comments)

* Key rate left at 5.00%, as expected

* Rates have been cut 4 times by 100 bps

* BI said 2020 policy to remain accommodative

By Tabita Diela and Nilufar Rizki

JAKARTA, Dec 19 (Reuters) - Indonesia’s central bank kept interest rates unchanged at its final policy meeting for 2019, though it reiterated a commitment to maintain accommodative policy next year to support Southeast Asia’s biggest economy.

Bank Indonesia (BI) held the benchmark 7-day reverse repurchase rate steady at 5.00%, as expected by the majority of analysts in a Reuters poll, saying this remained consistent with efforts to anchor inflation, maintain stability and lift growth.

“This year we have cut interest rates four times, cut reserve requirement ratios twice, relaxed macroprudential rules,” Governor Perry Warjiyo told a news conference.

“Next year, we will continue to lift our economy, support consumption and exports,” he said.

The rupiah barely moved after the rate announcement to trade around 13,990 per dollar, while the main stock index inched down to 6,253 points, from 6,263.

BI’s current easing cycle is among the main reasons the central bank expects an acceleration in 2020 economic growth, while an improvement in global growth could also lift exports and government reform could mean more investment, Warjiyo said.

This year’s economic growth is expected at around 5.1%, slowing modestly from 2018’s 5.17%, but this should rebound to the midpoint of BI’s 5.1%-5.5% forecast range next year, supported by stronger loan growth, Warjiyo said.

“We think the central bank will resume its rate-cutting cycle soon,” Gareth Leather, senior economist at Capital Economics, said in a note, predicting two more cuts in the current cycle. “The economy could certainly do with some support.”

Wisnu Wardana, Bank Danamon economist in Jakarta, expects BI to cut once more in 2020 and put more focus on the easing being translated into more bank lending and lower borrowing costs.

Governor Warjiyo conceded BI’s loosening had had limited success in driving down lending rates, with the working capital loan rate only down by 18 basis points since June, compared with the 100 bps total reduction in BI’s benchmark.

Analysts have also said BI will have to tread carefully in 2020 as the U.S. Federal Reserve is not likely to cut rates much further, limiting the central bank’s scope to ease policy without hurting the yield on Indonesian assets.

However, the governor said he sees less uncertainty in global markets after a positive development in the U.S.-China tariff war and the British election opening up a path for Brexit.

Warjiyo said Indonesia’s current account deficit remained under control despite November’s larger-than-expected trade deficit of $1.3 billion.

Inflation does not appear to be a worry for the central bank, with the governor certain price increases will stay within target next year. The 2020 inflation target range, at 2%-4%, is slightly below this year’s 2.5%-4.5%. (Reporting by Tabita Diela and Nilufar Rizki; Additional reporting by Fransiska Nangoy; Writing by Gayatri Suroyo; Editing by Jacqueline Wong)

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