MNI STATE OF PLAY: Indonesia CENBANK To Hold Despite Lockdown

The governors of Indonesia's central bank meet this week and are likely to keep benchmark interest rates at the record low of 3.5% despite a renewed lockdown which has prompted lower growth forecasts.

Bank Indonesia's seven-day reverse repurchase interest rate has been at 3.5% since February, and while the 2021 growth forecast was recently cut to 3.8% the bank is unlikely to move on interest rates this week.

The growth revision is the second this year, coming after an original forecast of 5.3%.

Inflation is muted, with retail sales flagging again due to the lockdowns in key parts of the nation such as Java and Bali. The CPI was up 1.33% in June, and BI expects it to hover between 2% and 4%.

REAL ECONOMY MEASURES, RUPIAH

Instead of cutting rates, BI is more likely to seek to ensure that its monetary policy is better transmitted to the real economy through commercial interest rates, and through measures which might raise household consumption.

Earlier this month, for example, the bank raised the cash withdrawal limits for chip-based ATMs to 20 million rupiah – USD1370 – and has announced moves for a digital currency and the licensing of digital banks.

A resurgence of the Coronavirus is hitting Indonesia hard, with around 50,000 new cases each day and 1000 deaths.

BI is also mindful of potential currency volatility and the rupiah is at around 14,500 to the U.S. dollar. This is a slight dip on its highs in June, and the currency continues to be sensitive to swings in sentiment.

Currency stability continues to mitigate against an interest rate cut, with expectations that the next move in rates could be a hike either later this year or early 2022.

The BI rate decision is due to be announced late Thursday in the Asia Pacific time zone.