Indonesia's central bank seen holding key rate despite weak consumption: Reuters poll

Reuters

Published Aug 18, 2017 02:07AM ET

Indonesia's central bank seen holding key rate despite weak consumption: Reuters poll

JAKARTA (Reuters) - Indonesia's central bank is expected to keep its benchmark interest rate unchanged on Tuesday despite sluggish private consumption that is denting economic growth, a Reuters poll showed.

In the poll, 19 out of 20 analysts predicted that Bank Indonesia (BI) would hold the 7-day reverse repurchase rate at 4.75 percent, where it has been since October.

The other analyst forecast that BI would cut the key rate by 25 basis points.

On Wednesday, BI Governor Agus Martowardojo gave a hint of potential policy easing "if all indicators support it". He said the central bank is "pretty happy" with the annual inflation rate, which was 3.88 percent in July.

But some analysts believe that a negative impact on the rupiah stands in the way of a rate cut. This year, the rupiah has strengthened about 0.8 percent against the dollar, less than most emerging Asian currencies have moved against the greenback.

"BI is set to reiterate its commitment to maintain financial system stability, and the rupiah (vs US dollar) in particular," said Gundy Cahyadi, an economist at DBS Bank in Singapore.

In early August, Indonesia reported that gross domestic product grew 5.01 percent in the second quarter from a year earlier - less than forecast - as private consumption remained lethargic.

To try to lift the growth rate, BI in 2016 cut its benchmark rate six times, by a total of 1.50 percentage points. In spite of the cuts, lending has been increasing at a slower pace than the central bank wants, and the economic growth rate has remained around 5 percent instead of nearing the 7 percent level President Joko Widodo wants.