JAKARTA: Indonesia's central bank is expected to keep interest rates unchanged at its meeting on Thursday, as it gives more time to tightening policies taken earlier to filter through the economy.
A successive series of rate increases last year helped to narrow the country's large current-account deficit, while inflation has eased and confidence has returned to the rupiah.
Analysts say the recovery in fundamentals is under way and Bank Indonesia will only step in later this year or next, if growth slows more sharply than it anticipates.
All 15 analysts surveyed in a Reuters poll expect Bank Indonesia to keep the key reference rate unchanged at 7.50 percent for the sixth straight month.
Its decision is due after 0400 GMT on Thursday.
The chance of a rate cut this year has also been pared down by markets, as the central bank has said its priority is to shrink the current-account deficit even at the cost of growth.
"Recent comments by several BI officials suggest that the central bank is not that worried about moderation in growth this year.
This is understandable since narrowing the current account deficit is a key priority for the central bank," said Gundy Cahyadi, economist at DBS in Singapore.
Growth in the world's 10th largest economy slowed to a more than four-year low of 5.21 percent in the first quarter from a year earlier, dampened by weak exports.
The poll also forecast the central bank would keep the deposit facility rate and lending facility rate at 5.75 percent and 7.50 percent, respectively.
Six out of nine analysts in the poll expect no change to rates this year as Bank Indonesia waits for the effects of previous tightening to be fully transmitted to the economy and ahead of the Federal Reserves' policy normalisation.
"While we maintain a 50-basis-point hike at end of the year, we acknowledge that BI will not hike its interest rates to anticipate the Fed's hike," said Standard Chartered's economist Eric A.
Sugandi, adding that rate rises could be postponed.
SOME WEAK SPOTS
While exports remain sluggish, partly due to a mineral export ban that went into effect in January, other indicators reflect the domestic recovery and will give the central bank room to keep its reference rate unchanged this year.
Annual inflation in April eased further to 7.25 percent on declining food prices, and the trade surplus was positive for a second consecutive month in March.
Bank Indonesia expects the current-account deficit in the first quarter to narrow to around 2 percent of gross domestic demand, underpinned by weaker imports and strong portfolio investment.
The gap was 3.3 percent in 2013 and hit a record 4.4 percent in the second quarter last year.
That forced the central bank to raise its reference rate by 175 basis points between June and November to halt a sell-off in the rupiah.
The currency is now Asia's best performing this year from being its worst in 2013.
Comments
Comments are closed.