Bank Indonesia holds rate steady to guard rupiah

Jakarta

INDONESIA'S central bank left its benchmark interest rate unchanged to protect the nation's currency amid high uncertainty about the course of the pandemic and prospects for an economic recovery.

Bank Indonesia kept the seven-day reverse repurchase rate at 3.5 per cent on Thursday, as all 28 analysts in a Bloomberg survey expected. Interest rates have been on hold since February's 25-basis point reduction, and are widely expected to stay at this level throughout 2021.

"The decision is consistent with the need to maintain the exchange rate and financial system amid low inflation, and for the economy to recover from the pandemic impact," Governor Perry Warjiyo said at a briefing in Jakarta.

The decision comes with the central bank keen to protect rupiah stability, given the weaker economic outlook amid the pandemic and the risk that potential tightening of US monetary policy could spark a sell-off of emerging-market assets. Southeast Asia's largest economy grew faster than expected in the second quarter - up 7.1 per cent from a year earlier - but the pace is expected to slow in coming quarters as mobility curbs largely remain in place, weakening consumption and business activity.

The government expects the economy to grow 3.7-4.5 per cent this year, while the central bank last month trimmed its outlook to 3.5-4.3 per cent. Mr Warjiyo has pledged to devote all tools to supporting economic growth this year without destabilising the currency.

The rupiah has weakened 2.55 per cent this year but has been relatively stronger since the last rate decision July 22, trading below 14,500 against the dollar. Fiscal spending and macroprudential measures are likely to play a bigger role in supporting a recovery going forward, particularly in boosting demand and lending. BLOOMBERG