MNI STATE OF PLAY: BI To Refrain From Cut As Rupiah Weakens

Bank Indonesia is expected to leave the benchmark seven-day reverse repo rate unchanged at the record low of 3.5% despite economic weakness, with the volatile rupiah continuing to be a major factor in policy.

While accommodative monetary policy is needed to provide more stimulus for an economy still struggling to recover from the pandemic, BI is also seeking to protect the value of the rupiah, which it believes is still undervalued by around 10%, MNI understands.

A recent rally in the currency proved to be short-lived as the U.S. dollar appreciated. The rupiah has fallen more than 1.5% in recent weeks and is down over 3% so far this year, despite intervention from the central bank.

GROWTH FORECAST

BI cut the benchmark rate by 25 basis points to 3.5% in February, after trimming it five times for a total of 125 basis points in 2020. The central bank also introduced a program of quantitative easing in 2020, buying government bonds direct on primary and also on secondary markets.

The bank has downgraded its growth forecast for 2021 to 4.1% from the previous 5.1%. GDP contracted by 0.74% in the first quarter of 2021, after shrinking 0.4% in the last quarter of 2020.

A decision from the Board of Governors' meeting is expected on Tuesday.