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Indonesia can't use interest rates for growth, central bank says

Wednesday, June 17, 2015 - 15:47

[JAKARTA] Indonesia's central bank isn't in a position to use interest rates to spur growth as cutting them would hurt the currency, Senior Deputy Governor Mirza Adityaswara said a day before a policy decision.

"It's not easy to adjust monetary policy now," Mr Adityaswara told reporters in Jakarta on Wednesday. "So we will address it by using macro-prudential instruments to support growth."

The comments reinforce forecasts for Bank Indonesia to keep its benchmark rate unchanged at 7.5 per cent for a fourth straight meeting on Thursday, after it joined global counterparts in cutting borrowing costs in February. The authority said last month it will loosen lending rules to support growth, as policy makers grapple with conflicting pressures in managing Southeast Asia's biggest economy.

The country needs to stem a growth slowdown while countering inflation risks and a currency-weakening current- account deficit.

"On the monetary side, the external monetary challenge is US rates that are set to rise," Mr Adityaswara said. "Even before they rise, emerging countries are experiencing capital outflow pressures."

On the monetary front, the policy response can't use the interest-rate instrument, he said.

"Where we still have a deficit in exports and imports, loosening interest rates will have an impact on exchange-rate weakness," he said.

BLOOMBERG

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