Indonesia c.bank seen holding key rate despite low inflation
* All 20 in the poll see BI keeping key rate at 6.00 pct
* February inflation rate lowest in almost a decade
* Analyst: Low inflation will bring forward easing
* Decision due on Thursday, Mar. 21, around 0700 GMT
JAKARTA, March 18 (Reuters) - Indonesia's central bank is
widely expected to keep interest rates unchanged for a fourth
straight month on Thursday, despite inflation falling to its
lowest pace in nearly a decade, a Reuters poll showed.
All 20 analysts in the poll predicted Bank Indonesia (BI)
would keep its 7-day reverse repurchase rate at
BI was one of Asia's most aggressive central banks last
year, raising the rate six times by 175 basis points to counter
outflows that kept the rupiah under pressure for most of
But as Asian central banks, along with the U.S. Federal
Reserve and the European Central Bank, are turning more dovish,
a growing number of analysts are expecting BI's next move will
be a cut.
Fueling the easing argument, February's annual inflation
rate was 2.57 percent, the lowest since November 2009 and near
the floor of BI's 2.5-4.5 percent target range.
Bank of America Merrill Lynch said the February pace "will
not only bring forward easing expectations, but will also mean
that there is bigger room for easing".
The bank saw "non-trivial likelihood" of easing before May,
saying there is room for 75-100 bps in cuts, though it warned
that an easing on Thursday risked being seen as stemming from
political pressure ahead of Indonesia's April 17 elections.
For months, BI Governor Perry Warjiyo has said the
benchmark level is "near its peak".
On Feb. 28, he said the direction of interest rates will be
down - if financial system stability is maintained.
Last week, Morgan Stanley recommended investors buy
Indonesia's 10-year sovereign bonds, predicting prices would
rise when BI starts to bring rates down by 75 basis points in
the third quarter.
"We think weakening USD and delayed Fed normalisation can
set the stage for a BI policy rate unwind if domestic macro
conditions are right, and we believe they are," its researchers
But Bahana Sekuritas analyst Satria Sambijantoro said
discussions with officials indicate it might be too early to
talk about cutting.
Bringing down Indonesian yield differentials by cutting
rates "might not spur rallies", the Jakarta-based Sambijantoro
said "but instead pose risks to the currency that eventually
cause global fund managers to unwind their overweight position
in Indonesian bonds."
The rupiah is up about 1 percent this year, reflecting
portfolio inflows to Indonesia's equity and bond markets.
(Polling by Nilufar Rizki, Gayatri Suroyo and Tabita Diela;
Writing by Gayatri Suroyo; Editing by Richard Borsuk)
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