Covid-19 measures: Bank Indonesia may further cut holding rates in Q1; virus total tops 917,000


JAKARTA, Jan 18 (Reuters): Indonesia's central bank will likely keep interest rates steady on Thursday but could cut them as early as the first quarter of 2021 as the country continues to grapple with the fallout of the Covid-19 pandemic, a Reuters poll showed on Monday.

All but two of 25 analysts in a Reuters poll expected Bank Indonesia (BI) to keep the benchmark 7-day reverse repurchase rate at 3.75%, with two others predicting a 25 basis point rate reduction this week.

South-East Asia's largest economy suffered its first recession in 22 years in 2020 as the pandemic hit consumption and business activity. Indonesia has been among the worst hit by the pandemic in the region, with daily infections rising to record levels over the weekend.



The Covid-19 cases in Indonesia rose by 9,086 in the past 24 hours to 917,015, with the death toll adding by 295 to 26,282, the Health Ministry said on Monday (Jan 18).

According to the ministry, 9,475 more patients were discharged from hospitals, bringing the total number of recoveries to 745,935.

The coronavirus has spread to all the country's 34 provinces.

In the past 24 hours, Jakarta recorded 2,361 new cases, Central Java 1,559, West Java 1,485, East Java 848 and South Sulawesi 661. No more coronavirus infections were detected in the two provinces of West Kalimantan and West Sulawesi.

"We expect the BI rate to maintain (the) status quo, with the commentary (expected) to be cautious as the grip of rising COVID-19 cases continues to be a hurdle for normalisation," said Radhika Rao, an economist with DBS.



BI slashed its benchmark rate by a total of 125 bps last year to help lift the economy out of the doldrums, while it also pumped some $50 billion of liquidity into the financial system and loosened credit rules. The benchmark rate has been at 3.75% since November, when the central bank last cut rates.

Analysts in the poll were nearly evenly split on whether monetary easing is in store for 2021.

Eight of 15 analysts who gave year-end views forecast a rate cut in the first quarter of this year, but seven others expected the central bank to stand pat for the whole of 2021.

The central bank will also have to balance the need to support the economy with concerns about keeping Indonesian assets attractive for foreign investors, after a rise in U.S. Treasury yields earlier this month pressured the rupiah, analysts said.

With BI's FX stability objective - which remains a priority, in our view - the recent rise in the US Treasury yields will likely inhibit BI from cutting the policy rate at this stage," said Nomura analysts in a research note. - Reuters
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