Bank Indonesia seen holding rates steady to support recovery

JAKARTA, April 17 (Reuters): Indonesia's central bank is expected leave its key policy rate unchanged at a record low for the rest of the year to support an economic recovery, while trying to maintain financial market stability, a Reuters poll has showed.

Bank Indonesia (BI) will keep the 7-day reverse repurchase rate at 3.50% at a policy meeting on Tuesday, where it has been since February, all 27 analysts surveyed by Reuters said.

Twenty-three of the respondents who gave longer term views predicted no change in the benchmark for all of 2021, and some expected BI to unwind some of its easing by the first half of 2022.

At its March meeting, Governor Perry Warjiyo noted that BI's decision to keep the benchmark steady was to anchor the rupiah amid global market uncertainty.

Last week, Warjiyo said he considered the rupiah "stable" compared with other emerging market currencies, while repeating a pledge to use all of BI's tools to support growth.

The rupiah has weakened further since, losing nearly 4% so far this year against the U.S. dollar and trading at the lowest since November.

BI has delivered six interest rate cuts totalling 150 basis points, carried out a quantitative easing programme and relaxed lending rules since 2020 to help Southeast Asia's largest economy recover from the COVID-19 pandemic.

"BI is likely to keep rates unchanged for as long as they can, but the likelihood going forward is for rate hikes given potential sooner-than-expected the Fed lifting up its rates," said UOB economist Enrico Tanuwidjaja, who is pencilling in a rate increase in the first quarter of 2022.

Government officials have said the economy is expected to contract in the first three months of 2021, but Indonesia should emerge from recession in the second quarter.

BI's forecast for 2021 GDP growth is a range of 4.3% to 5.3%, following a 2.07% contraction last year.

Still, ANZ analyst Krystal Tan said "a full-fledged recovery is still some way away", noting that inflation was still low and the COVID-19 vaccinations would take time.

"The upshot is that BI is likely to keep its policy rate unchanged through 2021 as it strikes a balance between growth, inflation and external stability concerns," she said. - Reuters
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