Indonesia central bank may cut key rate again

BANK INDONESIA may cut its benchmark rate again this week. — REUTERS

JAKARTA — A small majority of economists expect Bank Indonesia (BI) to cut its benchmark rate for the fourth straight month at its meeting this week to support the economy, a Reuters poll showed on Monday.

Eighteen of 30 analysts in the poll expected BI to trim the 7-day reverse repurchase rate by 25 basis points (bps) to 5.00% on Thursday, following three successive rate cuts totaling 75 bps. The others see BI keeping the rate at 5.25%.

“Recent data continue to point to sluggish economic activity, supporting the case for another rate cut,” ANZ’s economist Krystal Tan said, noting signs of weakness in consumption growth reflected by falling car and motorcycle sales.

Economic growth in 2019 is set to slow for the first time in four years hit by sluggish investment and weakening global growth from the protracted US-China trade war.

The central bank’s latest gross domestic product growth outlook for 2019 is 5.1%, compared with 5.2% last year, while 2020 growth is seen at the midpoint of 5.1%-5.5%.

BI officials have said their main focus is maintaining momentum in Southeast Asia’s largest economy. Last month, they complemented a rate cut with relaxation of lending rules and changes to monetary operations aimed at boosting growth.

A relatively stable rupiah and low inflation have allowed BI to roll back some of 2018’s 175-bp rate hikes, which was in response to capital outflows linked to US monetary tightening and Washington’s trade war with Beijing.

Ryan Kiryanto, a Bank Negara Indonesia economist who is among those predicting a hold this week, said the three rate cuts had not greatly affected demand for credit, and said November or December would be a more “proper timing for BI to once again lower the key rate to 5%.”

The median of 17 economists who gave longer-term forecasts expect the key rate to be brought down to 4.75% by the end of the first half of 2020.

HSBC, who sees a cut this week and another 25 bps in the first quarter of 2020, said in a research note that BI was likely to be more cautious for future rate reductions to keep Indonesia’s rate spread to US rates in line with comparable economies.

“The latest data suggest that the need for urgent easing is subsiding,” HSBC said, adding that investors’ focus will shift to efforts to lift growth by President Joko Widodo, whose second term began last Sunday.

Mr. Widodo is expected to unveil his cabinet later this week of ministers who would execute his economic policy, including a planned cut in corporate tax rates. — Reuters

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