Governor of Bank Indonesia Perry Warjiyo - Photo by TheInsiderStories

JAKARTA (TheInsiderStories) – Bank Indonesia decided to kept its seven days repo (BI-7DRR) rate to guard the economy from the global pressures and COVID-19 impact. The governor, Perry Warjiyo sees there are a window to lowering the benchmark rate in the future.

Last month, the central bank has cut its benchmark rate by 25 basis points to 4.75 percent, the deposit facility interest rate and lending facility rate to 3.75 percent and 5.25 percent.

Fitch Solutions forecast the central bank will cut its BI-7DRR by 50 basis points to 4.5 percent in this year to support the Southeast Asia’ biggest economy gross domestic products (GDP) and credit growth.

“We forecast BI to undertake two 25 bps rate cuts over the course of 2020 in order to support economic activity and credit growth,” said the agency, adding it in line with the inflation expectation, external stability and the effort to maintain domestic economic growth amid the slowdown of global economic growth

Nevertheless, the Rupiah is also predicted to be more vulnerable in 2020, due to external constraints and Indonesia is still dependent on foreign funds to finance fiscal deficits and the current account where 39 percent of government bonds are controlled by foreign investors. Therefore, Fitch suggested the central bank be more careful in deciding the policy.

“In 2020 we expect the country to record a current account deficit (CAD) of 2.8 percent of GDP,” it said.

Warjiyo sees the CAD will be lower than 1.5 percent of gross domestic products in in the first quarter of 2020. The flow of foreign money is also expected to enter. It is estimated that Indonesia’ balance of payments will also increase amid the pandemic.

He also reported, the foreign exchange reserves stood at $121 billion or equivalent to 7.2 months of imports and payment of Indonesia’ foreign debt and will increase in April and is sufficient to fund imports and stabilize the Rupiah exchange rate.

“We expect that the Rupiah exchange rate will tend to strengthen towards 15,000 by the end of this year,” he noted.

Indonesian Rupiah closed down to 15,660 this noon from the opening level 15,550 over the American Dollar.

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