Indonesia central bank holds rates, but cuts RRR to boost liquidity



KONTAN.CO.ID - JAKARTA. Indonesia's central bank kept its key interest rate unchanged on Tuesday, but cut the amount of cash banks must keep in reserve to inject liquidity into the financial system and help the economy ride out the coronavirus crisis.

Central banks around the world have slashed interest rates in the past few weeks and provided additional stimulus to help alleviate the threat to their economies from widespread travel curbs and shutdowns of schools and businesses.

Bank Indonesia Governor Perry Warjiyo said the central bank was cutting the reserve requirement ratio for banks by 200 basis points (bps) and 50 bps for Islamic banks, while also tweaking other liquidity rules, effective May 1.


Meanwhile, BI kept the 7-day reverse repurchase rate at 4.50%, as expected by a small majority of analysts in a Reuters poll.

The governor said total liquidity released from the combined new measures was 117.8 trillion rupiah ($7.55 billion) and that was in addition to liquidity injection operations that he described as "quantitative easing". He said the moves have so far added 300 trillion rupiah of liquidity into markets.

"Our stance is loose, very loose. And we say that the room for further lowering of interest rates remains available, but the problem is global uncertainty remains high," Warjiyo said, adding that BI's current priority was the rupiah's stability.

He said that expanding QE would be more effective in supporting growth for now.

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Andry Asmoro, Bank Mandiri's economist, called the measures a "great decision to support banks' liquidity".

Indonesia was caught up in an emerging market sell-off last month triggered by fears the virus pandemic would cause a global recession. But markets have rebounded on signs of slowing infections, raising hope that the worst may be over.

The Indonesian rupiah, which fell by 18% from its last peak in January to hit 16,620 a dollar in mid-March, has pared some of its losses. It stood at 15,610 per dollar at 0845 GMT Tuesday.

Indonesia, the world's fourth most populous country, had 4,557 coronavirus cases and 399 deaths as of Monday - the highest fatalities in East Asia outside China.

Editor: Wahyu T.Rahmawati