ASEAN KEY DESTINATIONS
Indonesia trims 2016 growth forecast
INDONESIA’S central bank yesterday kept its main policy rates steady, as expected, and trimmed its projection for economic growth this year after the first-quarter number was below forecasts.
Bank Indonesia (BI) left its current and future benchmark rates at 6.75 per cent and 5.50 per cent, respectively, for a second monthly meeting.
The central bank trimmed its growth forecast for this year to 5.0-5.4 per cent from 5.2-5.6 per cent.
Annual growth in the first quarter was 4.92 per cent, lower than BI’s and markets’ expectation of 5.1 per cent. In 2015, Indonesia had growth of 4.8 per cent, the lowest level in six years.
BI started an easing cycle early this year with three rate cuts totalling 75 basis points (bps) to try to prop up economic growth. The central bank has also reduced banks’ reserve requirement ratio to effectively inject money into the financial system.
In April, BI announced that on August 19, it will stop using its current 12-month benchmark and instead use the 7-day reverse repo rate, in an effort to help it better influence market rates.
The switch in benchmarks has made some analysts say interest rates won’t be changed at least until August.
Easing before August?
But while it held rates again yesterday, BI Governor Agus Martowardojo said the bank may ease its policy sooner if macroeconomics conditions are maintained during the transition period to a new benchmark.
“If it is possible, we can change our monetary stance parallel with the condition of reformulation of Bank Indonesia’s policy rate until August 19,” he told a press conference.
Economic conditions BI would like to see are inflation staying in the middle of its 3-5 per cent range for this year, current account deficit smaller than an earlier estimate and a stable rupiah.
Previously, BI has indicated disappointment that its easing measures this year have yet to have a significant impact on loan and economic growth. But yesterday, it noted that commercial banks have started to lower both their deposit and lending rates.
Aldian Taloputra, economist at Standard Chartered in Jakarta, said BI sounds “quite downbeat”, with the downward GDP revision, and policy will remain “accomodative”.
Gareth Leather, senior Asia economist at Capital Economics, said given that BI is changing its benchmark as recent cuts haven’t been fully passed through by banks, “there seems little point in cutting the reference rate any further. Instead, BI’s main focus between now and August will be to get the infrastructure in place to support the new rate regime.”
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