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Economists Expect Bank Indonesia to Maintain Benchmark Rate

The Jakarta Globe – Jakarta. Economists expect Bank Indonesia to maintain its benchmark rate at 4.75 percent this week amid an expected uptrend in inflation and financial volatility following the election of Donald Trump as president of the United States.

Seven economists from state-owned lender Bank Mandiri, private lenders Bank Central Asia, Bank Permata, Bank Danamon Indonesia and DBS Bank, as well as Samuel Asset Management and Jakarta-based think-tank Kenta Institute, share the same expectation of the central bank’s upcoming decision.

“Room for further policy easing has decreased as inflation is expected to increase next year due to cuts in electricity subsidies and a possible increase in the price of liquefied petroleum gas,” Bank Permata economist Josua Pardede told the Jakarta Globe.

“I think Trump’s win in the US election was also beyond Bank Indonesia’s expectations,” he said.

Bank Indonesia is set to announce the rate after a meeting by its board of governors on Thursday (17/11).

The central bank has already cut its benchmark rate – the so-called seven-day reverse repo rate – six times this year in an effort to spur domestic demand and support economic growth.

However, the rate cuts have only had limited impact on commercial banks’ lending so far. According to Indonesia’s Financial Services Authority (OJK), the lending rate rose 6.3 percent in September from a year earlier. The financial regulator expects it to grow by between 6 percent and 8 percent.

Gundy Cahyadi of DBS Bank said the central bank will weigh its policy options on a higher inflation risk.

“Once this year’s oil distortion is over, expect CPI inflation to be back in the 4 percent to 5 percent range,” he said.

Indonesia’s consumer price index, or CPI, accelerated to 3.31 percent in October from 3.07 percent a month earlier. Bank Indonesia expects an inflation rate of 3 percent to 5 percent this year.

“And beyond all these, we continue to think that markets are underestimating intentions to hike the federal funds rate [the US central bank’s benchmark rate],” Gundy said.

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