Indonesia’s Central Bank Keeps Interest Rates On Hold, Loans Rules Relaxing, Auto News, ET Auto
JAKARTA: The Indonesian central bank left its key rate unchanged on Wednesday, prioritizing market stability, but easing some lending rules to stimulate consumption in the pandemic-hit economy.
The decision came after Southeast Asia’s largest economy contracted 5.32% in the second quarter, stronger than expected and amid a rising number of coronavirus cases in the country.
Bank Indonesia (BI) left the 7-day reverse repurchase rate at 4.00%, the lowest since at least 2016 when it started using the rate as a benchmark, as reported by a majority of economists in a Reuters – Survey expected.
In response to the pandemic, BI cut the key rate four times this year to a total of 100 basis points (bps). These came on top of the 100 basis point cuts in 2019 to support economic growth.
On Wednesday, the central bank lifted loan repayment obligations for the purchase of environmentally friendly vehicles for lenders with low non-performing rates effective October 1. Previously the deposit was 5-10%.
“We believe quantitative measures are more effective in supporting economic recovery. In which way? Monetary easing by the banking system, ”Governor Perry Warjiyo said on an online newscast, noting that an unchanged benchmark rate would maintain an attractive spread for overseas corporate investors.
Varyyo said the central bank will monitor developments in the economy, financial markets and coronavirus cases in its future monetary policy review.
BI has injected rupees 651.54 trillion ($ 44.17 billion) of liquidity so far this year. It has also negotiated a $ 40 billion budget deficit financing program with the government, in which the central bank buys $ 28 billion in bonds while waiving interest payments.
Wisnu Wardana, an economist at Bank Danamon in Jakarta, said BI was likely to be finished with its rate cuts for the year, with the governor’s comments signaling that policymakers were pleased with signs of economic recovery.
However, Capital Economics’ Alex Holmes said there could be further easing, with high-frequency data suggesting the recovery has stalled but “provided the rupiah does not see another spell of weakness.”
The rupiah, which has recently been under pressure from global uncertainties, gained 0.5% against the dollar, while the main stock index increased its losses following the announcement.
Indonesia’s coronavirus case count has hit 144,945, a 75% increase in about a month since BI last met, while 6,346 people have died from COVID-19 disease.
The government is forecasting a slight decline or flat growth in the economy this year, but some analysts expect GDP to shrink – for the first time since the Asian financial crisis in 1998 for the resource-rich country.
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