Indonesia’s central bank left its benchmark interest rate unchanged for a second straight month, saying exports and economic growth will probably rebound next year.
Bank Indonesia kept the seven-day reverse repurchase rate unchanged at 5% yesterday, as predicted by 24 of 27 economists surveyed by Bloomberg.
The others expected a cut of 25 basis points.
“Monetary policy remains accommodative and consistent with an inflation estimate that’s under control within the target range,” Bank Indonesia governor Perry Warjiyo told reporters in Jakarta.
He forecast the economy will expand 5.1%-5.5% in 2020, up from about 5.1% this year.
The central bank is taking a gradual approach to cutting interest rates after four reductions of a total of 100 basis points since July.
The bank will strengthen its “accommodative mix” of policies, Warjiyo said, indicating it will continue using a combination of interest rates and macro-prudential measures to spur the economy.
While global growth is slowing, Indonesia’s economy remains on a solid footing, with consumer confidence rising, Warjiyo said.
Progress in talks to resolve the US-China trade dispute is a positive sign, and key reforms the government is planning – including on tax and the labour market – will help drive investment in Indonesia, he said.
Charu Chanana, deputy head of Asia research at Continuum Economics in Singapore, sees limited room for further easing in 2020.
“Bank Indonesia’s optimism went too far and we think there still remain considerable downside risks to growth,” Chanana said.
What Bloomberg economists say: We expect another 25-50 bps of cuts in the first half of next year, assuming the Phase One trade deal between the US and China is implemented and there are no major setbacks to risk appetite that would threaten to destabilise capital inflows and the rupiah.
Inflation, which eased to 3% in November, is expected to remain below historical averages, and the bank will lower next year’s target band to 2%-4%, from 2.5%-4.5% currently, Warjiyo said.
The rupiah is up almost 3% against the dollar this year, making it one of top performers in Asia.
The currency should “remain supported by yield-seeking inflows, especially as global monetary policy looks to stay well-anchored in 2020,” said Chang Wei Liang, macro strategist at DBS Bank Ltd in Singapore.
The current-account deficit is projected at about 2.7% this year and 2.5%-3% next year Loan growth, which reached 6.5% in October, is seen at about 8% for the full year and expected to rise to 10%-12% in 2020.
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