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Indonesia CB Holds Key Rate Steady For Fifth Month

Indonesia's central bank left the key interest rate unchanged for a fifth consecutive month on Thursday and announced measures to boost domestic demand.

The Board of Governors agreed to hold the BI 7-day reverse repo rate at 6 percent, Bank Indonesia said. The decision was in line with economists' expectations.

The bank left the Deposit Facility and Lending Facility rates at 5.25 percent and 6.75 percent, respectively.

The decision is consistent with continuing efforts to strengthen the external stability of the national economy, the bank said.

The host of measures to stimulate domestic demand, announced on Thursday, include increasing available liquidity and supporting financial market deepening by strengthening the monetary operations strategy.

The retail payment efficiency was enhanced by expanding National Clearing System services, namely through an extended settlement time with faster settlement, an increase in the nominal transaction ceiling and lower tariffs.

The bank increased the supply of Domestic Non-Deliverable Forward (DNDF), in particular by simplifying the regulations concerning underlying transactions.

The package also included implementation of market operator regulation in the money market and foreign exchange market, and developing the Commercial Papers market as an alternative source of short-term funding for the corporate sector.

The central bank expects strong growth in the first quarter, underpinned by domestic demand. The bank projected the growth for this year in the 5-5.4 percent range.

The balance of payments is projected to show a surplus in the first quarter and the bank aims to keep the current account deficit in a range of 2.5 percent of GDP through measures to stimulate exports and tourism and curbs on imports.

"Governor Perry Warjiyo has shot down expectations of a reversal in BI's policy stance, citing external risks for the need to retain the attractiveness of Indonesian financial assets," ING economist Nicholas Mapa said.

"However, if the IDR remains stable and the central bank is able to build up reserves further, we do expect a possible reversal in the current stance sometime in the 3Q, as long as the Federal Reserve remains on hold until then," he added.

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