JAKARTA: Indonesia's central bank is expected to make its fifth policy rate cut this year on Thursday, as it tries to help lift annual growth back above 5%.
Eleven of 16 economists polled by Reuters said Bank Indonesia (BI) will cut the benchmark 12-month reference rate by 25 basis points to 6.25%. The other five predict a hold.
The four cuts this year have reduced the benchmark by one percentage point to 6.50%
In the first quarter, annual growth was a disappointing 4.92%. In 2015, the rate was 4.8%, the lowest since 2009. BI projects 5-5.4% for this year.
Economic growth may not have improved in the second quarter, governor Agus Martowardojo has said, as weak global growth continued to affect Southeast Asia's largest economy. Second-quarter data will be announced on Aug 5.
Many say BI's rate cuts have yet to aid growth as commercial banks have not trimmed lending rates fast enough. Loan growth in May was 8.3%, below BI's outlook for 12% growth this year.
ANZ economists said the high lending growth target necessitates further rate cuts and it forecast BI on Thursday to not only cut the reference rate, but also the rate charged to commercial banks for borrowing money overnight and banks' reserve requirement ratio.
"There is ample space for policy easing, provided for by the Fed's dovish tone and still benign inflation outlook," ANZ said.
BI deputy governor Perry Warjiyo, citing the same factors, said last month that there was still room to loosen monetary policy.
The annual inflation rate was 3.45% in June, inside BI's 3-5% target band.
Deutsche Bank has warned against monetary policy being too loose. "Our worry is that while there may be reasonable room for one more rate cut, if Q2 growth is not well above 5%, there will be pressure to cut more," it said in a note, adding that the central bank's easing cycle in the past led to overheating and worsening of external balances.
Gundy Cahyadi of DBS in Singapore said a rate cut may not improve loan growth as underlying demand for borrowing remains weak.
To better guide commercial banks' rates, BI next month will fully adopt the seven-day reverse repurchase rate as its benchmark policy rate next month. The reverse repo rate is currently 5.25%.