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Bank Indonesia Holds Rate Steady After Four Cuts; Trims Reserve Requirements

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Indonesia's central bank left the key interest rate unchanged on Thursday after four consecutive cuts, but slashed the reserve requirement ratio for banks to ensure liquidity for the banking system, and thus boost lending to support economic growth.

The Board of Governors of Bank Indonesia, led by Governor Perry Warjiyo, decided to leave the 7-day reverse repo rate at 5.00 percent, in line with economists' expectations.

The bank cut the rate in four consecutive policy session from July, when it reduced the rate for the first time since September 2017.

Both the deposit and lending facility rates were left unchanged at 4.25 percent and 5.75 percent, respectively.

"Monetary policy remains accommodative and consistent with inflation forecasts," the bank said.

Bank Indonesia reduced the reserve requirement ratio for banks by 50 basis points. The corresponding ratios for commercial banks and Shariah banks were thus lowered to 5.5 percent and 4 percent, respectively.

The lowered ratios will take effect in January 2020.

"The policy was adopted to increase the availability of banking liquidity in increasing financing and supporting economic growth," the central bank said.

The country's year-on-year economic growth slowed to 5.02 percent in the third quarter from 5.05 percent in the previous three months.

"The Indonesian economy is resilient, although slowing slightly in line with the weakening global economy," the bank said.

The central bank expects growth to improve in the fourth quarter in line with seasonal pattern and the expansion of fiscal policy. Full year growth for 2019 is forecast at around 5.1 percent.

Inflation is forecast to remain low and to be around 3.1 percent in 2019.

"We expect the central bank to monitor GDP performance in the coming months while also keeping a close eye on the Indonesian rupiah, should it stray from its appreciation bias in 2019," ING economist Nicholas Mapa said.

"With inflation expected to remain within target going into 2020, BI may resume its easing cycle in early 2020 to give growth momentum an added boost, given the possibility of an escalation in global headwinds."

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