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Bank Indonesia says rate review delayed by swearing-in ceremony

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by July 21, 2017 General

Logo of Indonesia's central bank, Bank Indonesia, as seen in Jakarta January 19, 2017. Bank Indonesia blamed a swearing-in ceremony at the nation’s financial regulator for the delay of its interest-rate announcement. — Reuters pic Logo of Indonesia’s central bank, Bank Indonesia, as seen in Jakarta January 19, 2017. Bank Indonesia blamed a swearing-in ceremony at the nation’s financial regulator for the delay of its interest-rate announcement. — Reuters pic JAKARTA, July 21 — Bank Indonesia blamed a swearing-in ceremony at the nation’s financial regulator for the delay of its interest-rate announcement to close to midnight in Jakarta yesterday.

The timing of the decision left analysts puzzled and spurred speculation the central bank might have been waiting for European Central Bank President Mario Draghi’s monetary policy press conference that came hours beforehand. The Indonesian authority held its benchmark rate at 4.75 per cent, as predicted by all 19 economists surveyed by Bloomberg. It last cut the rate in October.

Bank Indonesia spokesman Arbonas Hutabarat said today the meeting was delayed because several central bank board members had attended a ceremony at the Financial Services Authority, or OJK, earlier in the afternoon. There was “no linkage to the ECB,” he said. There’s no specific time for Bank Indonesia’s monthly press conference where the rate decision is disclosed, but in recent months it’s come before 6 pm local time.

“Quite why the decision took so long is unclear — the decision was exactly what everyone had expected,” said Gareth Leather, a senior Asia economist at Capital Economics Ltd in London. “The policy statement offers no clues to why the meeting dragged on so late into the evening.”

Dovish Draghi

Bank Indonesia cut interest rates six times last year and eased reserve limits on lenders in July to help spur lending and support economic expansion. The monetary authority said yesterday that inflation — which has ticked up recently because of rising food and electricity costs — will remain within it’s 3 per cent to 5 per cent target band, while the rupiah has stabilised.

The Indonesian decision came after dovish comments from ECB President Draghi, which may continue to underpin foreign inflows into emerging markets, like Indonesia. The ECB may not make a decision on tapering its bond-buying programme until October, euro-area officials familiar with the matter said.

The timing of Bank Indonesia’s rate announcement after the ECB’s “showed BI’s concerns regarding external risks emanating from policy normalisation amongst the major central banks,”  Mohamed Faiz Nagutha, an economist at Merrill Lynch Asia Pacific Ltd, said in a note.

Europe-based funds account for “almost half” of the foreign holdings of Indonesian government bonds, Wisnu Wardana and Anton Hendranata, economists at PT Bank Danamon in Jakarta, wrote in a note today. “We have reason to believe that there may be greater impact to local bond and currency when the ECB starts its quantitative tightening,” they wrote.

The yield premium Indonesia’s benchmark 10-year bonds offer over US Treasuries has widened 18 basis points from a 2013 low of 450 reached on July 5. Against similar-maturity German bunds, the spread is near the least since 2014 at 641. Foreign funds have sold a net 6.4 trillion rupiah (RM2.06 billion) of Indonesian debt so far in July. The rupiah has gained 1.1 per cent in 2017 and was up 0.2 per cent to 13,314 per dollar as of 2.41pm in Jakarta today.

Indonesia’s economy will probably expand at a slightly faster pace in the second quarter at about 5.1 per cent, Assistant Governor Dody Waluyo told reporters in Jakarta. There are early signs that retail sales growth is improving, he said.

“We were very surprised it was so late,” said Ho Woei Chen, an economist at United Overseas Bank Ltd in Singapore. The decision was a “non-event,” she said. — Bloomberg

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