Bank Indonesia to hold rates until late 2022 awaiting economic resurgence

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BENGALURU, October 15 (Businesshala) – Indonesia’s central bank will keep interest rates steady next week to prop up the economy as activity slowed down by the recent devastating COVID-19 wave slows pace, according to a Businesshala poll of economists. is catching.

Since the start of the pandemic, Bank Indonesia (BI) has lowered its benchmark seven-day reverse repurchase rate (IDCBRR=ECI) by 150 basis points to a record 3.50% and injected more than $57 billion of liquidity.

All 29 economists expected the rate to remain stable at the conclusion of the BI’s policy meeting on October 18-19.

The survey’s average forecast during the last week, projected interest rates to remain at their current 3.50% until the third quarter of next year, rising by 50 basis points to 4.00% in the last quarter of 2022.

“As long as inflation remains weak and the currency remains broadly stable, they are pleased to support monetary policy and boost recovery,” said Gareth Leather, senior Asia economist at Capital Economics.

Inflation, at 1.6% in September, has been below the central bank’s target range of 2% to 4% since mid-2020 and was expected to remain low this year. But it has increased to 2.9% next year and then to 3.0% in 2023.

The Indonesian rupiah has remained largely stable this year, down nearly 1% against a resurgent dollar. The recent rise in energy prices has also provided support as Indonesia is a major commodity exporter.

The central bank remains cautious in hopes of avoiding any backdrafts from the US Federal Reserve’s plan to reduce its bond buying program starting next month. When the Fed last lowered in 2013, the rupee had depreciated by more than 20%.

“In 2013, it was one of the fragile five currencies that got caught in a major selloff,” Leather said.

“There are a whole bunch of differences (now) all suggesting that Indonesia will not get caught up as badly as it did then.”

Indeed, analysts say that Indonesia’s economy is in a stronger position. The current account deficit is relatively small, with BI’s own estimate of 0.6% to 1.4% of GDP for 2021.

The trade surplus reached an all-time high of $4.7 billion in August, but was expected to dip to $3.8 billion in September.

Indonesia’s economy expanded at the fastest pace in 17 years in the second quarter of this year, breaking a four-quarter streak of contraction as a result of the pandemic.

But optimism around the recovery was built in July by an outbreak – one of the worst resurgences of COVID-19 in Asia – that forced officials to reimpose restrictions.

According to the latest Businesshala poll, Southeast Asia’s largest economy was predicted to grow by 3.2% in the just-ended quarter and 4.6% in this.

This is below the 4.7% and 4.8% expected in the last Businesshala Economic Outlook poll taken in July at the time of the outbreak.

The economy was expected to grow by 3.4% this year and to 5.1% in 2022. Those predictions were downgraded from earlier predictions of 4.3% and 5.2%, respectively. The survey shows that growth is projected to remain stable at 5.1% in 2023.

“Consumption is expected to recover gradually as restrictions are eased, especially in 4Q21,” noted economists at United Overseas Bank. “Investments should also improve at a faster pace, supported by increased FDI and recent government efforts to ease business licensing.”

(For other stories from the Businesshala Global Economic Poll)

Reporting by Shalu Srivastava; Voted by Mohd Manjer Hussain and Devyani Satyan; Editing by Ross Finlay and Jonathan Otis


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