Indonesia's central bank on Thursday held rates for the first time this year, as expected, and some analysts see no further easing until it switches to a new benchmark rate in August. Bank Indonesia (BI), which has been frustrated that banks have not lowered loan rates in line with its moves, said liquidity and consumption have started to improve in the wake of its easings.
On Thursday, BI kept the 12-month benchmark rate at 6.75 percent, and left the seven-day reverse repo, which will become the new benchmark on August 19, at 5.50 percent. At this year's three previous monthly meetings, BI cut its benchmark by a total of 75 basis points. In November and February, it slashed its reserve requirement ratio by a cumulative 150 bps to make more funds available for lending.
"The transmission of monetary policy through March had shown progress although it was not optimal," said Juda Agung, BI's executive director of monetary and economic policy, adding that deposit rates went down only by 37 bps and lending rates by 13 bps. In February, annual loan growth slowed to 8.2 percent, the weakest since 2009.
Capital Economics thinks BI will probably extend Thursday's easing pause until August, as it gets ready for the new benchmark.
"Given that cuts in the reference rate are proving ineffective at getting commercial banks to lower their lending rates, there seems little point in cutting them any further," it said in a note. BI unveiled details of auction changes while saying it will accumulate more bonds to conduct monetary operations under the new benchmark.
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