Indonesia central bank keeps rates unchanged, vows more support

JAKARTA: Indonesia's central bank held interest rates unchanged at its first meeting of 2021 on Thursday, but pledged to continue to support Southeast Asia's largest economy amid surging coronavirus cases and tightening restrictions.

Bank Indonesia (BI) kept the 7-day reverse repurchase rate at 3.75%, a record low, as expected by the majority of analysts in a Reuters poll.

"Going forward, Bank Indonesia will continue to direct all policy instruments to support national economic recovery," Governor Perry Warjiyo said in a streamed briefing.

Indonesia suffered its first economic recession in over two decades last year as the pandemic hit consumption and business activity, costing jobs.

To soften the blow, BI slashed interest rates by 125 basis points in 2020, pumped some $50 billion worth of liquidity into the financial system and relaxed lending rules.

But with coronavirus cases and deaths rising at record levels, analysts worry a return to more normal levels of economic activity could be some way off. Indonesia has the highest number of coronavirus cases and COVID-19 deaths in Southeast Asia.

The government recently tightened restrictions in some provinces including Jakarta after a resurgence in cases put hospitals under serious strain, even as the country began a mass vaccination campaign earlier this month.

Faisal Rachman, Bank Mandiri economist, said BI was expected to keep rates steady this year.

"Space to hike the benchmark rate in 2021 is almost none while space to cut the rate tends to narrow," Faisal said.

Eight of 15 analysts who gave year-end views in the Reuters poll forecast a rate cut in the first quarter of 2021.