Indonesia leaves key rate unchanged

[JAKARTA] Indonesia's central bank held its key policy rate unchanged on Thursday, saying that it wanted to maintain stability amid global uncertainties and will monitor the impact of higher US rates.

The BI Board of Governors agreed to hold the BI 7-day (Reverse) Repo Rate at 4.75 per cent, while maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.00 per cent and 5.50 per cent respectively.

The decision is consistent with Bank Indonesia's efforts to maintain macroeconomic and financial system stability amidst growing global uncertainty.

Bank Indonesia continues to monitor and remains vigilant of various short term risks, both global and domestic.

Global risks include rising global inflation, US economic and trade policy direction and Fed Fund Rate hike effects, as well as geopolitical risks from Europe.

Domestically, the impact of administered prices (AP) on inflation still needs to be monitored.

Therefore, Bank Indonesia constantly optimises its monetary, macroprudential and payment system policy mix to preserve macroeconomic and financial system stability.

Furthermore, Bank Indonesia will continue to strengthen coordination with the Government, focusing on controlling inflation within the target corridor as well as accelerating structural reform programs to support sustainable economic growth.

Economic growth is expected to continue improving, despite a number of risks that need to be observed.

The global economy continued to post positive growth on the back of the US and emerging markets economic gain as well as rising commodity prices.

Consumption and investment continues to buoy the US economy, coupled with improvements in terms of employment and incomes.

Moreover, international commodity prices, including oil and Indonesia's export commodity prices, continue to rise.

On the other hand, a number of global risks demand vigilance, including the increase of inflation in advanced economies that can trigger monetary tightening in said countries.

Meanwhile, further FFR hikes can potentially boost USD strengthening and elevating cost of borrowing.

The Brexit issue, along with geopolitical risks in several European countries due to growing populist sentiment and debt settlement in Greece, could exacerbate global uncertainty.

Indonesia's economy is predicted to remain strong in the first quarter of 2017, compared to the previous quarter, driven stronger investment, robust consumption and improving export performance.

REUTERS