Indonesia’s central bank maintained its benchmark interest rate for the eighth consecutive month on Thursday (21/9), with a focus on ensuring the rupiah remains stable and inflation remains within target.
Bank Indonesia (BI) maintained the BI 7-Day Reverse Repo Rate at 5.75 percent, since January, as widely expected by 31 economists surveyed by Reuters.
The other two key interest rates were also kept unchanged.
The decision reaffirmed most analysts’ expectations that BI would keep interest rates on hold until global uncertainty eased due to concerns about pressure on the currency.
BI Governor Perry Warjiyo said the reference was in line with the central bank’s stance of ensuring inflation remained within its target range in 2023 and 2024.
The inflation target range will be lowered to 1.5 percent to 3.5 percent in 2024, the central bank said.
The rupiah remains the best-performing emerging market currency in Asia, but has gradually depreciated against the US dollar in recent weeks to its weakest level in six months.
FILE: People walk to the entrance of Indonesia’s central bank, Bank Indonesia (BI) in Jakarta, July 21 2016. (REUTERS/Iqro Rinaldi)
BI has attempted to balance currency stability by controlling inflation and maintaining Indonesia’s growth momentum in line with declining exports amidst weakening commodity prices.
“Monetary policy remains focused on controlling the stability of the rupiah exchange rate as an anticipatory and mitigation measure against the impact of global financial market uncertainty,” Perry said at a press conference.
BI expects the US Federal Reserve to raise interest rates in November, which Warjiyo said could maintain dollar strength. Meanwhile, the slowdown in China’s main trading partner could put pressure on Indonesian exports.
BI’s room to loosen policy is limited by the strong US dollar and pressure on Indonesia’s balance of payments, said Fakhrul Fulvian, economist at Trimegah Securities. “New easing space will emerge next year,” he said.
Consultancy Capital Economics also postponed expectations for the first BI interest rate cut in October to December.
Bank Indonesia analyst, Gareth Leather, said the US Federal Reserve’s firm statement seemed to make BI uneasy, and emphasized that the Indonesian central bank must keep the rupiah exchange rate stable due to the large amount of debt in foreign currency.
BI maintains its 2023 GDP growth target in the range of 4.5 percent to 5.3 percent, compared to the 2022 growth rate of 5.3 percent.
Inflation, which peaked near six percent last year due to high energy and food prices, returned earlier to BI’s target of two percent to four percent than expected this year. In August, inflation was still close to the midpoint of the range at 3.27 percent.
BI has also started offering its own debt securities this month as an adjustment to its monetary operations aimed at deepening domestic financial markets and attracting foreign capital inflows.
Perry said the market had responded positively to the bonds, with repeated purchases at the first two auctions, in which BI sold a total of IDR 37.7 trillion ($2.45 billion). About 5% of the bonds have been traded on the secondary market, mostly bought by those without permanent resident status, BI said.
The BI Governor said the size of future auctions would depend on market appetite. (ab/uh)