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Bank Indonesia keeps rates on hold amid global risks

[JAKARTA] Bank Indonesia is keeping interest rates unchanged for the moment given global uncertainties, and will turn to macro-prudential policies to support economic growth, governor Perry Warjiyo said.

"Our monetary policy is always forward-looking and ahead of the curve," Mr Warjiyo said in an interview with Bloomberg Television's Haslinda Amin in Chiang Rai in Thailand. "For the time being, we need to look at the external stability and that's why were still holding up our interest rate."

Bank Indonesia has kept its key rate unchanged following 175 basis points of hikes between May and November last year to counter an emerging market selloff.

The nation's currency and bonds have rallied since then, and with the US Federal Reserve putting rate hikes on hold, economists from Goldman Sachs Group Inc, Morgan Stanley and elsewhere predict Indonesia will cut rates in coming months.

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Mr Warjiyo said while global growth risks are rising, US developments remain the main factor driving sentiment in emerging markets. He said external conditions are improving, and was "positive and quite pleased" with the steps Bank Indonesia took last year to stabilise the currency.

That allows the central bank to shift its focus to supporting economic growth. It eased macro-prudential norms last month to allow banks to boost lending to businesses to ease liquidity constraints ahead of April's presidential and parliamentary elections.

The governor said economic growth will probably pick up this year, and the authorities need to work harder to boost exports. The relaxation in macro-prudential norms will support growth and lead to a loan growth of 12 per cent this year, Mr Warjiyo said.

"We have to increase our consumption and our investment," Mr Warjiyo said. "This is why we are more forward looking, more preemptive, in the relaxation of liquidity, macroprudential and other aspects to support growth."

Bank Indonesia sees room for rupiah to strengthen further, Mr Warjiyo said, citing Fed's dovish rate outlook and its own policy response. The currency has advanced 7 per cent in the past six months to become the best performer in Asia.

BLOOMBERG