Bank Indonesia stands pat on rates, monitors global risks

Bank Indonesia said it was monitoring global risks that could affect the Indonesian economy, noting particularly the US Federal Reserve’s plan to shrink its balance sheet. ― Reuters picBank Indonesia said it was monitoring global risks that could affect the Indonesian economy, noting particularly the US Federal Reserve’s plan to shrink its balance sheet. ― Reuters picJAKARTA, April 20 ― Indonesia’s kept its benchmark rate unchanged today for the sixth straight meeting, saying the current level was consistent with its efforts to maintain stability.

Southeast Asia’s largest economy has benefitted from stronger and improved commodity prices that have boosted its exports and narrowed the current account deficit, but higher US rates may exert pressure on the rupiah.

Bank Indonesia kept the 7-day reverse repurchase rate at 4.75 per cent, as widely expected. All 15 analysts surveyed in a Reuters poll had expected no change. The two other policy rates were also kept unchanged.

Dody Budy Waluyo, BI’s executive director of economic and monetary policy, described the policy stance as “biased towards neutral”, adding the current level was sufficient to keep in the middle of the central bank’s 3-5 per cent target range. BI was ready to raise rates if necessary, he said.

The central bank said it was monitoring global risks that could affect the Indonesian economy, noting particularly the US Federal Reserve’s plan to shrink its balance sheet.

Some economists expect BI to stay on hold for the rest of 2017 despite a soft economic outlook.

“Despite the poor outlook for the economy, a rate cut is unlikely this year,” said Gareth Leather, senior Asia economist with Capital Economics, noting inflationary pressures and a fragile rupiah.

“BI is worried that aggressive by the US Fed could cause the currency to slump. Indonesia’s relatively high level of foreign-currency denominated debt makes it vulnerable to falls in the rupiah.”

Indonesia’s inflation has dipped to 3.61 per cent on an annual basis but is likely to pick up in coming months due to an increase in energy prices.

Investors are also watching for any economic impact from the divisive Jakarta election. Indonesia’s main stock index and the rupiah edged down today.

BI officials noted market sentiment toward the election was neutral.

BI’s policy stance was more pro-growth in 2016. It cut its benchmark rate six times by a total of 150 basis points and eased some lending regulations to help the economy.

The cuts were aimed at boosting the growth rate. Last year’s growth rate was 5.0 per cent, a slight pick-up from the 4.8 per cent recorded in 2015 which was the weakest in six years.

Waluyo said growth in the first quarter was likely less than the central bank had initially expected with indicators showing weaker household consumption. ― Reuters

Source: The Malay Mail Online






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