(Adds details, comment by economist)
* Benchmark kept at 3.50%, record low
* C.bank sees economic growth at 3.9% this year
* Rupiah worries likely to keep rates on hold-economist
JAKARTA, July 22 (Reuters) – Indonesia’s central bank held its key interest rate at a record low on Thursday to support the economy amid a growing COVID-19 crisis, but said recent coronavirus mobility curbs had hit activity by less than previously expected.
Bank Indonesia (BI) kept the benchmark 7-day reverse repurchase rate at 3.50%, where it has been since February, as expected by all 31 economists in a Reuters poll. The central bank also maintained its two other main policy rates unchanged.
Governor Perry Warjiyo said BI’s decision was consistent with the need to support the economy while keeping the local currency stable. The rupiah has lost more than 2% against the U.S. dollar since the Federal Reserve in June flagged an earlier-than-expected exit from its pandemic-era stimulus.
“For 2021, all of BI’s policies are pro-growth, except for those aimed at maintaining the currency stability in anticipation of global market uncertainty,” Governor Perry Warjiyo said in an online news conference.
The announcement comes as Indonesia has ramped up coronavirus restrictions in recent weeks amid surging infections in a country that has the biggest caseload and death toll in Southeast Asia.
The government said this week it would extend movement restrictions in place since July 3 in some areas until at least Sunday.
Due to the curbs, BI has cut its 2021 economic growth forecast range to between 3.5% and 4.3% from 4.1% to 5.1% previously.
But the midpoint of the forecast range was 3.9%, slightly higher than the 3.8% BI forecast a week ago, because the curbs are expected to be eased next week, sooner than BI’s previous assumption, Warjiyo said.
GDP shrank 2.1% last year, the first full-year contraction since 1998.
The rupiah, which gained ahead of BI’s announcement, barely moved after the decision. The currency has been weakening over the past week amid concerns that coronavirus curbs could derail the economic recovery.
“The main reason rate cuts are unlikely is worries about the currency,” said Capital Economics in a note.
BI has cut interest rates by a total of 150 basis points and injected over $57 billion of liquidity into the financial system during the coronavirus pandemic. (Reporting by Gayatri Suroyo, Fransiska Nangoy and Tabita Diela Editing by Ed Davies and Ana Nicolaci da Costa)