Bank Indonesia keeps rates at record lows to support recovery

[JAKARTA] Indonesia's central bank kept its policy rates steady at record lows on Tuesday, saying the decision was in line with the need to support the economic recovery while keeping the rupiah stable.

Bank Indonesia (BI) held the benchmark 7-day reverse repurchase rate steady at 3.50 per cent for the eighth straight month. All 29 analysts in a Reuters poll had expected rates to remain unchanged.

Indonesia's economy expanded at the fastest pace in 17 years in the second quarter of 2021, but the recovery was clouded by an outbreak in July - one of the worst resurgences of Covid-19 in Asia - that forced authorities to reimpose restrictions.

While the domestic recovery was being buoyed by high exports and improving consumption after a recent easing of coronavirus curbs, the central bank stuck to its forecast for 3.5 per cent - 4.3 per cent growth this year.

BI also said the global recovery was expected to be more subdued than previously estimated due to rising Covid-19 cases and higher energy prices, also noting that disruptions to the global supply chain needed to be monitored.

The central bank said it will continue to ensure the local currency reflects economic fundamentals.

The rupiah has gained around 1.1 per cent against the dollar since the BI's last meeting on the back of robust commodity exports, but is still down 0.3 per cent on the year.

A stronger rupiah also gave BI some room to keep monetary policy accommodative. Talk of US tapering weighed on the rupiah earlier this year, and some analysts had worried that further BI easing could add downward pressure on the currency.

BI has cut interest rates by a total of 150 basis points since the pandemic started, and has launched a quantitative easing programme.

REUTERS