JAKARTA, Dec 17 (Reuters) - Indonesia’s central bank kept interest rates steady on Thursday, holding fire after cutting five times this year and launching quantitative easing, but pledged to use all its instruments going forward to support a pandemic-hit economy.
Bank Indonesia (BI) held the 7-day reverse repurchase rate at 3.75%, a record low for the benchmark BI adopted in 2016 and as expected by most analysts in a Reuters poll.
Elsewhere in Asia, central banks in Taiwan and in the Philippines also left their key rates steady on Thursday.
In a virtual briefing, BI Governor Perry Warjiyo prodded banks to cut lending rates further to support the economy.
“Ample liquidity as well as reduction of the benchmark rate have contributed to the lowering of savings and lending rates ... However, BI views the reduction in banks’ interest rates to be slow,” said Warjiyo.
BI data showed commercial bank lending contracted 1.39% in November. This was the weakest since at least 2002, according to Refinitiv, and came despite the 125 bps cuts in BI’s benchmark rate this year and 694.9 trillion rupiah ($49.34 billion) liquidity injection.
Southeast Asia’s largest economy has suffered its first recession in over two decades as the pandemic hit consumption, business activity and jobs in the country with the highest COVID-19 caseload in the region.
The “abysmal” contraction in November loan growth was “indicative of the rather deep malaise in business and consumer confidence”, said OCBC Bank analyst Wellian Wiranto, who expects BI to cut rates further in 2021.
Governor Warjiyo reiterated a commitment to use all of BI’s instruments to support economic recovery, but underlined that the unrolling of a vaccination programme and sticking to coronavirus health protocols were a prerequisite for growth.
He maintained an outlook of 4.8%-5.8% GDP growth in 2021, compared with 1%-2% contraction this year.
Budi Hikmat, director of Bahana TWC Investment Management, praised BI’s decision to hold rates as “preserving bullets for next year”, while chiding banks for pouring excess liquidity into government bonds instead of lending.
Commercial banks’ ownership of government bonds surged to 37.4% as of Dec. 15, from 22.6% at the start of the year, overtaking foreign investors as the top holders of government bonds.
The share held by foreigners declined from 38.6% to 25.2% during the same period.
The rupiah, which has been stable in recent weeks, closed slightly firmer after the rate announcement, while the main stock index erased earlier gains.
In a separate call with investors, the governor said the rupiah was about 10% undervalued.
(Additional reporting by Tabita Diela Editing by Ed Davies)