March 16, 2020 / 8:12 AM / 16 days ago

Indonesia central bank seen making second cut in 2020 to help economy weather coronavirus impact: Reuters poll

JAKARTA (Reuters) - Bank Indonesia (BI) is likely to cut its key policy rate this week, a small majority of analysts in a Reuters poll predicted, as global policy makers move to support their economies and calm the financial markets hit hard by the coronavirus pandemic.

Twelve of 21 think BI would opt to cut the benchmark 7-day reverse repurchase rate IDCBRR=ECI by 25 basis points (bps) to 4.50% - the lowest since April 2018. It would be the second such cut this year and the sixth in the current easing cycle.

One analyst expected a 50 bps cut.

Eight others in the poll predicted BI would hold the benchmark at 4.75% due to concerns about capital outflows, as global investors liquidate assets to cover steep losses in a myriad of assets amid the coronavirus crisis.

Some of the forecasts were made before the Federal Reserve’s emergency move on Sunday to slash rates to near zero.

BI Governor Perry Warjiyo has said the February rate cut had only taken into account the virus’ impact in China, where the outbreak originated late last year. China is Indonesia’s biggest trade partner and a major source of investment and tourists.

Since then, the World Health Organization has described COVID-19 as a pandemic as the virus has spread rapidly worldwide, putting many countries on virtual lockdowns and severely disrupting economic activity.

Indonesia had 117 coronavirus patients as of Sunday, including the country’s transport minister, and 5 deaths.

Some cities have now begun to close schools, while some companies have asked employees to work from home and major sports events have been postponed.

Last week, the governor said BI would likely cut its 2020 GDP growth forecast at the upcoming meeting, which would be a second downward revision after last month’s trim from 5.1%-5.5% to 5.0%-5.4%.

JP Morgan said the Federal Reserve’s emergency cut on Sunday provides space “that could prompt further easing – likely aggressively – among regional central banks than what is already penciled in”, listing Indonesia’s central bank, along with those in India, Malaysia and the Philippines, as those with the most room to act.

Capital Economics’ analyst Alex Holmes is among those predicting a hold, arguing BI would be concerned with the rupiah’s depreciation.

So far this year, the rupiah IDR= has lost 7% of its value to trade at the weakest levels in over a year, while the main stock index .JKSE plunged 25% and bond yields jumped.

The government last week pledged to spend $8 billion to stimulate the economy.

BI would make its announcement online and not hold a physical press conference to curb the spread of the virus.

Polling by Tabita Diela and Gayatri Suroyo in Jakarta and Shaloo Shrivastava in Bengaluru; Editing by Shri Navaratnam

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