MNI STATE OF PLAY: Bank Indonesia Confident On Growth Outlook

Bank Indonesia is expecting strong growth of 5% in the third quarter as Southeast Asia's largest economy reopens after the lockdown, with the improved outlook giving the confidence to keep benchmark interest rates on hold.

Although Bank Indonesia, or BI, has kept its 2021 growth forecast steady at 3.5% to 4.3%, BI Governor Perry Warijyo said in a televised briefing late Tuesday that in addition to Q3 growth of 5%, the central bank was expecting Q4 growth of 4.5%.

The economy rebounded 7.07% in the second quarter after contracting in Q1.

Warjiyo noted improvement across a number of economic indicators, such as retail sales, consumer confident, PMI Manufacturing and payments transactions, see: MNI INSIGHT: Bank Indonesia Is Confident On Pandemic Recovery.

Warjiyo has said that there will be no rate hikes this year, a comment which has also reduced the likelihood of a cut while suggesting that the next move in the benchmark rate could be up, but sometime in 2022 as the recovery gathers pace.

RUPIAH REGAINS

BI also sees the rupiah regaining some of its lost value despite global market uncertainty, supported by the "positive perception of investors" on the domestic economic recovery.

The central bank left its benchmark reverse repo rate steady at 3.5% yesterday, after cutting by 150 basis points over 2020.

BI has also purchased USD87 billion in Government bonds direct from the Government under its program of quantitative easing.

With inflation benign at 1.59%, the rupiah steady and the economy recovering there is little pressure for BI to cut rates further, and the bank is focusing more on trying to transmit its easier policy through to the economy.