Indonesia central bank signals rates to stay at record low this year

JAKARTA: Indonesia's central bank kept its policy rates unchanged on Tuesday, and signalled it would leave them at a record low until at least the end of the year to support the economic recovery.

Bank Indonesia's (BI) benchmark 7-day reverse repurchase rate was held at 3.50per cent, where it has been since February, and as expected by all economists in a Reuters poll.

"We maintained the benchmark rate at 3.5per cent, until when?... until we see signs of inflation rising, and the soonest such signs of rising inflation appear could be early next year," Governor Perry Warjiyo said in a streamed news conference.

"In this context, of course, it will depend on how fast the economy recovers and, of course, depends on bank lending as well," he said, adding that if BI was to begin to unwind its easing cycle, the first measure would be by reducing excess liquidity.

Indonesia's inflation rate was 1.42per cent in April, below BI's target range, he said.

BI will focus on the transmission of its previous easing measures to accelerate the recovery from the coronavirus pandemic, blaming the present credit crunch on banks being reluctant to lend due to fears over rising bad debts.

Southeast Asia's largest economy shrank for the fourth quarter in a row in January-March, though at a much more modest pace of 0.74per cent, data showed earlier this month. Private consumption remained sluggish and the outlook in the coming quarters is clouded by a slow vaccine rollout.

BI trimmed its 2021 GDP growth outlook to a range of 4.1per cent-5.1per cent last month, after a 2per cent decline in 2020.

Warjiyo said early indicators showed that GDP may grow more than 7per cent on an annual basis in the second quarter, followed by a 5.3per cent expansion in the third quarter.

Meanwhile, the governor said global uncertainty has eased and praised the U.S. Federal Reserve for "transparent" communication, even as the rupiah recently came under renewed pressure.

Wellian Wiranto, an OCBC economist, said the BI statement showed a continuation of its recent stance and reaffirmed his view the central bank will keep the policy rate unchanged for the rest of the year.

During the news conference, the governor also announced more measures to boost economic growth such as lowering the maximum credit card interest rate, measures to support lending to small and medium businesses and plans for a digital rupiah currency.

(Reporting by Gayatri Suroyo and Fransiska Nangoy; Additional reporting by Tabita Diela; Editing by Ed Davis and Jacqueline Wong)