Indonesia central bank leaves key rate unchanged, lowers economic forecast

JAKARTA (REUTERS) - Indonesia's central bank kept its new benchmark rate unchanged on Friday, reduced its forecast for economic growth this year and said there was room for more monetary easing.

The central bank adopted a seven-day reverse repurchase rate as its new benchmark this month, the same rate its uses one-week reverse repo contracts with commercial banks. It left that rate at 5.25 per cent, as expected.

"With the economic stability, room for monetary easing is still open. ... ," the central bank's governor, Agus Martowardojo, told reporters. "We have to follow economic data. If data supports it, we can do easing."

Twelve out of 20 analysts polled by Reuters expected not chance.

The other eight predicted a cut of 25 basis points. "With growth struggling and inflationary pressures low, a rate cut is likely sooner rather than later," said Capital Economics in a research note after the rate decision, adding that it expected one more rate cut this year.

The previous benchmark, a 12-month reference rate, has been cut four times this year, by a total of 1 percentage point this year.

In line with a previous announcement, the central bank cut its overnight repo rate to 6.00 percent to peg it 75 basis points above the new main rate. The deposit facility rate was kept at 4.50 per cent. "The cut to the lending facility rate was to lower banks'costs of being illiquid, which is one of the central banks' best practices," said Deputy Governor Mirza Adityaswara.

Southeast Asia's largest economy grew at its strongest pace in 10 quarters in April-June, but the central bank has said the economy has yet to show structural improvement.

On Friday, the central bank lowered its outlook for grow this year to 4.9-5.3 per cent from 5.0-5.4 per cent, saying the lower forecast took into account US$10 billion (S$13.4 billion) of state spending cuts and weaker global growth after Britain voted to leave the European Union. "Economic growth in the first half was helped by government spending and the reduction of it in the second half will affect economic growth," Mr Martowardojo said.

He forecast gross domestic product would grow 5.14 per cent in the third quarter and slightly below 5 per cent in the last three months of this year.

The central bank has said a successful tax amnesty programme would provide Indonesia with the liquidity it needs to finance economic activities.

But Finance Minister Sri Mulyani Indrawati told Reuters earlier on Friday that revenue collected so far from the tax amnesty was less than expected.