UPDATE 2-Indonesia c.bank keeps rates steady to support recovery from pandemic

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*Benchmark rate kept as expected at 3.50%

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* BI sees economy recovering in Q4, strong growth in 2022

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* Decisions in line with support recovery, keeping rupee stable (adds direct quote from Governor, comments of economists)

JAKARTA, Nov 18 (Businesshala) – After disappointing third-quarter growth due to the deadly COVID-19 wave in July, Indonesia’s central bank raised interest rates to record levels on Thursday to support the country’s economic recovery from the pandemic. kept on

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Bank Indonesia (BI) said the decision was in line with the low inflation outlook and the need to keep the rupee currency stable, as major central banks around the world move to tighten monetary policy.

BI left the benchmark 7-day reverse buyback rate unchanged at 3.50%, where it has been since February, as expected by all economists surveyed by Businesshala. It also kept its other two policy rates constant.

Governor Perry Varajio is upbeat about the economic outlook, expecting activity in the fourth quarter to be higher than this year and in 2022. BI had earlier predicted a growth of 3.5% to 4.3% this year.

“Economic growth is expected to improve in the fourth quarter, supported by improved exports, higher fiscal spending and improved consumption and investment,” Varajio said in an online news conference. Global supply chain disruptions were also beginning to ease in recent months.

He said the BI would provide a more thorough assessment of the economy and policy guidance at an annual meeting with bankers on November 24.

Southeast Asia’s largest economy grew at a slower-than-expected 3.51% in the third quarter as restrictions to control rising COVID-19 cases weighed on activity, the only bright spot with strong exports, recent data showed. .

Some of those coronavirus restrictions have been eased since late August.

Varzio said that increased mobility of people and the reopening of business sectors will reduce demand, leading to further credit growth.

“(BI) indicated that policy rates will remain unchanged for some time. Large output gaps and weak inflation mean that the central bank is in no hurry to follow other EM central banks by tightening policy,” said Capital Economics Director Economist Gareth Leather said.

Indonesia’s annual inflation rate was 1.66% in October, which has remained below the BI’s 2-4% target range since mid-2020. Varajio said he expects inflation to remain within the target range for 2021 and 2022.

Bank Central Asia’s chief economist David Samuel said price pressure could intensify next year as a rise in global producer prices would moderate domestic inflation. This would mean that BI will have to consider a rate hike in the second half of 2022.

BI has slashed interest rates by a total of 150 basis points and launched a quantitative easing program to help the economy cope with the fallout of the pandemic.

Meanwhile, Varajio said he expects the rupee to continue rallying from Indonesia’s large trade surplus, including a record $5.7 billion in October, even as the US Federal Reserve begins reducing asset purchases Is.

The rupee is one of the best-performing emerging Asian currencies, though it is still down around 1.3% in 2021, having fallen earlier this year on hopes of the Fed tapering off.

Analysts have said Indonesia’s improved external balance puts it in a better position to counter any downside from the Fed’s plan to reduce its bond purchases this month versus 2013, when a Fed tapering announcement raised the rupee. gave a tough fight. (Reporting by Gayatri Suryoyo and Francesca Nangoy; Editing by Ana Nicolasi da Costa)


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