JAKARTA: Bank Indonesia (BI) will likely cut its benchmark rate on Thursday for a fourth time this year after pledging to step up bond purchases to fund the government’s efforts to fight the pandemic, a slim majority of respondents said in a poll.
Fourteen of 26 economists polled expect the central bank will trim the 7-day reverse repurchase rate by 25 basis points to 4.00%, the lowest since at least 2016, when it adopted the rate as its benchmark.
The other 12 see the central bank standing pat on rates due to the recent depreciation of the rupiah currency.
BI and the government last week unveiled a US$40 bil (RM170.56 bil) fiscal deficit financing scheme to fund the fight against the coronavirus pandemic in Southeast Asia’s largest economy.
The “burden-sharing” scheme involves the central bank promising to purchase 397.6 trillion rupiah (RM118.15 bil) worth of government bonds while relinquishing interest payments.
Governor Perry Warjiyo has reiterated several times that BI has scope for more rate cuts even after the bond-buying scheme.
“It will be a close call but we think Bank Indonesia will cut interest rates,” Alex Holmes of consultancy Capital Economics wrote in a note. “The economy is certainly in need of further support.”
A rate cut on Thursday will be on top of the three reductions of 75 bps so far this year, as inflation remains low
BI last month trimmed its 2020 gross domestic product (GDP) growth forecast to 0.9%-1.9%, with 2021 growth seen at 5%-6%.
Finance Minister Sri Mulyani Indrawati said last week the GDP may have shrunk by as much as 5.1% annually in the second quarter.
Goldman Sachs analysts, however, say a pause in the easing cycle is slightly more likely given the rupiah’s 3% decline since the June central bank meeting, although they continue to expect further cuts of 50 bps this quarter.
President Joko Widodo said on Monday Indonesia’s coronavirus outbreak is expected to peak in August or September, state news agency Antara reported, after the country saw 76,981 infections and 3,656 fatalities. – July 14, 2020, Reuters
