Indonesia’s central bank yesterday kept its key interest rate unchanged, as expected, but pledged to accelerate planned changes of rules on reserve requirements, to give banks more liquidity and encourage them to invest money.
Bank Indonesia (BI) held the seven-day reverse repurchase rate at 4.25% for a fourth straight month, as predicted by all 18 analysts polled by Reuters.
The deposit facility and lending facility rate, the floor and ceiling rates, were kept at 3.50% and 5% respectively.
Analysts are split over whether the easing cycle has ended.
“The economy could certainly do with more support,” Capital Economics said in a note. “Although inflation rose slightly in December...it is unlikely to be a barrier for further easing.”
BI said it would bring in faster plans to relax its reserve requirement for banks and would start similar averaging rules for foreign exchange deposits and Islamic banks.
Banks would still be required to keep an average of 6.5% of their deposits at BI over a two-week period, but need only have a 4.5% deposit each day.
That would give them 2 percentage points of flexibility, up from 1.5% now.
For foreign deposits, banks would only be required to have a minimum 6% daily reserve, but would have to maintain their reserves at an average of 8% over two weeks.
“The objective for this change is to increase liquidity capability for banks,” said Dody Budi Walujo, head of macroeconomic policy at BI. “Banks would have more room to be more effective (with their reserve) and to gain better return.”
The change is expected to be adopted starting from July for conventional rupiah deposits and October for forex deposits and Shariah banks.
BI first changed the reserve requirement rules from a fixed daily amount to a two-week average last year.
Walujo said the change would also help BI to achieve a more effective policy transmission and encourage banks to use excess funds to investment in financial markets.
BI, which cut the benchmark rate by 150 basis points in 2016, cut it a further 50 basis points last year, despite concern over possible outflows that could weaken the rupiah.
With the cuts, the central bank had hoped to stimulate a pick-up in growth and lending by banks.
However, loan growth remains stubbornly low. It has been below 10% annually every month since the beginning of 2016, when the economy was hit by a commodity downturn.
This has contributed to keeping economic growth close to 5% and well below a target set by President Joko Widodo in 2014 of attaining 7% by 2019, when his five-year term ends.
Yesterday, BI forecast 2017 economic growth of 5.1%, and a growth range of 5.1% to 5.5% this year.
The statistics bureau will announce 2017 fourth-quarter and full-year GDP growth data in early February.
LEAVE A COMMENT Your email address will not be published. Required fields are marked*
Turks will not be brought to their knees: Erdogan
Greece hails new post-bailout chapter but concerns remain
Premier Oil approves Tolmount gas project in UK North Sea
BoE’s unanimous rate hike has economists projecting two in 2019
US and Mexico are said to bridge gap on Nafta farm goods
Apple removes 25,000 apps in China
China defies US pressure as EU parts ways with Iran oil
Bank of Thailand governor strikes hawkish tone as GDP gains 4.6%
Vanke H1 profit rises 25% amid resilient property market