JAKARTA: Indonesia's central bank, due on Thursday to unveil a policy decision hours after one from the U.S. Federal Reserve, is expected to cut its benchmark interest rate for the fifth time this year in a bid to nudge economic growth higher.
Last month, Bank Indonesia (BI) trimmed its economic growth projection for the year, saying annual growth pace would likely weaken in the third and fourth quarter from April-June's 5.18 percent, due to spending cuts by the government.
Since then, Governor Agus Martowardojo has repeatedly said BI may ease monetary policy again in September or October, by cutting the key rate, banks' reserve requirement ratio or through some other means, depending on macro economic data.
Seventeen of 23 economists surveyed by Reuters said BI will likely cut its new benchmark, the 7-day reverse repurchase rate , by 25 basis points to 5.00 percent. The other six predicted BI will hold.
Low inflation and a strengthening rupiah helped create room for BI to cut its previous benchmark rate, the 12-month reference rate, four times this year, by a total of 1 percentage point.
August's annual inflation rate was 2.79 percent, the lowest since December 2009.
RBS economist Vaninder Singh said the way last month's inflation rate was below BI's 2016 target range of 3-5 percent is one factor giving it cause to cut again now.
RISING RESERVES
Standard Chartered's Aldian Taloputra agreed there would be a cut, pointing to rising foreign exchange reserves and the steady performance of the rupiah, which this year has strengthened nearly 5 percent against the dollar.
The country's reserves as of end-August were $113.5 billion, almost $10 billion above the end-May level.
"With sustained portfolio inflows and the central bank's desire to contain rupiah strength, the monetary authority has another reason to act," Singh said.
Rahul Bajoria of Barclays said that results of monetary policy reviews by the Bank of Japan and the U.S. Federal Reserve just ahead of BI's announcement will be a factor in its decision.
Barclays, unlike many others, expects the Fed to hike rates now. In light of that view, "the balance of risks is tilted towards BI holding rates this week, followed by a rate cut of 25 bps in October, as market conditions settle down," Bajoria said.
In the Indonesia poll, only seven analysts gave views on where the benchmark rate would be at year-end. Four who expect a cut on Thursday saw the rate staying at 5.00 percent, while the other three forecast another trim of 25 bps to 4.75 percent.
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