Indonesian CB seen holding rates

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    JAKARTA- Bank Indonesia (BI) is widely expected to keep interest rates unchanged as the rupiah comes under pressure due to a rise in US bond yields, with some analysts seeing no more room for further easing, a Reuters poll showed on Tuesday.

    All 28 analysts surveyed predicted BI will keep the 7-day reverse repurchase rate unchanged at 3.50 percent, a record low. All 16 analysts who gave longer-term views expected no change throughout the year.

    BI has cut the key rate six times, totaling 150 basis points, since the beginning of the COVID-19 pandemic, on top of its more than $50 billion quantitative easing and relaxation of lending rules, in its efforts to accelerate Indonesia’s economic recovery.

    “We do not anticipate BI easing further, as we expect a cyclical recovery to take hold and gather pace from here, amid vaccine rollout and low base effects,” Deyi Tan, an analyst with Morgan Stanley, wrote in a research note.

    However, the recent rise in US rates has triggered market anxiety about emerging market capital outflows similar to those in 2013, when Indonesia was dubbed one of the “fragile five” countries and BI had to jack up rates to defend the rupiah.

    Tan doesn’t expect a similar response this year as macroeconomic indicators are in better shape than during the so-called “taper tantrum”.

    The rupiah has weakened 3.6 percent since its last peak on Feb. 16. In the same period, Indonesia’s benchmark 10-year government bond yield has risen 47 basis points to close at 6.758 percent on Monday.