Bank Indonesia will keep rates unchanged until late 2022, pending a recovery in the economy

[ASEAN NOW Content Team]

 

According to a Reuters poll of experts, Indonesia's central bank will maintain interest rates constant next week to stimulate the economy as activity stopped by the recent disastrous COVID-19 wave gradually picks up.

Bank Indonesia (BI) has lowered its benchmark seven-day reverse repurchase rate by 150 basis points to a record low 3.50 percent since the outbreak and injected more than US$57 billion in liquidity.

 

At the end of BI's policy meeting on Oct. 18-19, all 29 economists predicted the rate to remain unchanged.

According to the poll's median predictions, interest rates will remain at 3.50 percent until the third quarter of next year, before climbing by 50 basis points to 4.00 percent in the fourth quarter of 2022.

"They are content to maintain monetary policy supportive to try and help the recovery as long as inflation remains moderate and the currency remains essentially steady," said Gareth Leather, senior Asia economist at Capital Economics.

 

Inflation has remained below the central bank's target range of 2% to 4% since mid-2020, and was forecast to stay moderate this year, at 1.6 percent in September.
However, it is expected to rise to 2.9 percent next year, and then to 3.0 percent in 2023.

This year, the Indonesian rupiah has mainly remained stable, losing roughly 1% against a resurgent dollar.
Because Indonesia is a significant commodities exporter, the recent surge in energy prices has also helped.

 

The central bank has stayed cautious, seeking to prevent a backlash from the Federal Reserve of the United States' plans to taper its bond-buying programme, which is expected to begin next month.
The rupiah depreciated by more than 20% when the Fed last tapered in 2013.

"It was one of the five vulnerable currencies that got caught up in a massive sell-off in 2013," Leather explained.

"There are a lot of differences now that all point to Indonesia not getting caught up as terribly as it did back then."

 

Indonesia's economy, according to economists, is on a more secure footing.
The current account deficit is small, with BI estimating it to be between 0.6 and 1.4 percent of GDP in 2021.

The trade surplus hit an all-time high of US$4.7 billion in August, but was forecast to fall to US$3.8 billion in September.

 

In the second quarter of this year, Indonesia's GDP grew at its best rate in 17 years, breaking a four-quarter streak of recession brought on by the pandemic.

However, an outbreak in July - one of the worst resurgences of COVID-19 in Asia - prompted officials to re-impose restrictions, casting doubt on the recovery.

According to the most recent Reuters poll, Southeast Asia's largest economy is expected to increase 3.2 percent last quarter and 4.6 percent this quarter.

 

That's down from the 4.7 percent and 4.8 percent predicted in the most recent Reuters economic outlook poll, which was conducted in July, just before the outbreak.

The economy is predicted to grow at a rate of 3.4 percent this year, increasing to 5.1 percent in 2022.
These projections have been lowered from earlier estimates of 4.3 percent and 5.2 percent, respectively.
According to the poll, growth will stay stable at 5.1 percent in 2023.