JAKARTA (Reuters) – Indonesia’s central bank is expected to keep its key interest rate steady next week as the economy gradually reopens after a recent devastating COVID-19 wave, while a record high trade surplus should provide underlying support to the local currency.
Reuters polled 25 experts and found that Bank Indonesia (BI), would maintain the 7-day benchmark reverse repurchase rate of 3.50% Tuesday, following a policy meeting lasting two days.
BI kept rates at record levels since February to help the coronavirus-hit country. It also tried not to put pressure on the rupiah which fell about 1.5% in the face of talk of U.S. tapering.
This week’s data showed that Indonesia’s trade surplus exceeded $4.74 billion in August. Analysts expected this would support the rupiah.
A stronger rupiah gives the central bank some flexibility to maintain accommodative policy, but analysts don’t expect further rate cuts. They predict that BI will focus on liquidity and not more.
Helmi Armand, Citi economist wrote that the expected high trade surpluses of late 3Q or early 4Q would help to temper net dollar demand by onshore corporations and could therefore be supportive for IDR in near term.”
We do not change our views on the policy rate …. and remain firm in our belief that the rates are at their bottom.
The largest economy in Southeast Asia pulled out of recession during the second quarter. However, a COVID-9 revival and restrictions on mobility imposed from July to August probably impacted growth.
The restrictions were gradually lifted since August. In recent days, daily coronavirus infection rates have fallen to less than 4,000.
Wellian Wiranto from OCBC said that the Indonesian economy has improved in comparison to a month and a half ago. She expected BI would keep rates stable “for a long time”.
The Reuters poll showed that analysts expected BI to keep its key rate unchanged for the first half 2022, and then increase it to 3.75% in the third quarter.
Officials at the central bank have promised to maintain low interest rates until inflation rises. Since mid-2020, inflation has remained below BI’s 2% to 4% target range.
BI cut its interest rate by 150 basis points, injected liquidity in excess of $57 billion in the wake of the pandemic of 2020 and signed an agreement last month with the government to buy bonds in the amount of 439 trillion rupiah (or $30.81 billion), in 2021-2022.
(Polling by Shaloo Shrivastava, Vivek Mishra and Md Manzer Hussain in Bengaluru; Writing by Gayatri Suroyo; Editing by Ana Nicolaci da Costa)
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