Indonesia’s central bank left its benchmark interest rate unchanged to guard against the risk of currency volatility and inflation driven by surging rice prices.
(Bloomberg) — Indonesia’s central bank left its benchmark interest rate unchanged to guard against the risk of currency volatility and inflation driven by surging rice prices.
Bank Indonesia held the seven-day reverse repurchase rate at 5.75% on Thursday, as seen by all of 27 economists in a Bloomberg survey. The policy rate has been at this level — a four-year high — for eight straight months.
The decision underscores the ongoing concern on rupiah stability after the Federal Reserve signaled rates will likely stay higher for longer after one more hike this year, a move that will take borrowing costs in US at par with Indonesia for the first time.
Governor Perry Warjiyo said Thursday that the rupiah remains under control in line with policy. He and his colleagues in the policy panel have deployed several measures to prop up foreign inflows and stabilize the currency, while keeping interest rate supportive of growth. The rupiah has fallen more than 2.5% against the dollar so far this quarter, among the weakest pairs in Asia.
Bank Indonesia’s market tools seem to have gained traction after the new rupiah securities called SRBI attracted almost 38 trillion rupiah ($2.5 billion) in its first two auctions. The FX term deposit for exporters received the highest fund so far earlier this month.
Indonesian lawmakers called on the central bank to take a “bold but measured” step in easing monetary policy as “more moderate” rate will boost confidence in the economy. However, the central bank may not want to downplay inflation risks that may arise amid surging costs of rice and oil.
While maintaining its economic growth forecast for the current year at 4.5%-5.3%, the central bank said it expects inflation to also be within its 2%-4% target, and ease to 1.5%-3.5% next year.
The outlook notwithstanding, risks persist in the near term. Last month, the price of rice in Southeast Asia’s biggest economy shot up by nearly 14% year-on-year, the fastest pace in a decade. Headline inflation remained within the central bank’s target at 3.27% in August.
–With assistance from Norman Harsono, Yudith Ho, Soraya Permatasari and Tomoko Sato.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.