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Indonesia central bank stands pat on rates, sees slower Q3 growth
[JAKARTA] Indonesia's central bank kept
its benchmark interest rate unchanged on Tuesday, taking a pause
after 150 basis points of rate hikes since May, and warned that
third quarter economic growth may not be as strong as initially
The 7-day reverse repurchase rate was held at
5.75 per cent, which Bank Indonesia (BI) Senior Deputy Governor
Mirza Adityaswara said is consistent with efforts to narrow the
current account gap and maintains the attractiveness of assets
for foreign investors.
A Reuters poll had expected BI to pause its tightening cycle
this week, taking advantage of relatively calm markets.
Satria Sambijantoro, Bahana Sekuritas economist, said BI may
hike next month to pre-empt the U.S. Federal Reserve's widely
anticipated December rate increase.
BI "is merely reloading its ammunition before launching
another monetary tightening in November," he said.
The rupiah, the second worst performer among emerging
Asian currencies, has remained around 15,200 a dollar in the
past two weeks, near its weakest since the Asian financial
crisis. It barely moved after Tuesday's decision.
The currency is about 11 per cent weaker than its end-2017
level, hurt by capital outflows triggered by rising U.S.
interest rates and the United States-China trade war.
Higher borrowing costs may hurt medium-term economic growth.
But although BI said loan growth continued to pick up in August,
economic growth was expected to be slower than initially
expected in the third quarter.
UNFAVOURABLE COMMODITY PRICES
The deputy governor said growth in Southeast Asia's largest
economy in July-September was expected to be "a little less than
5.1 per cent" and it may pull the rate for full-year 2018 to the
lower end of BI's 5.0-5.4 per cent outlook.
BI attributed this to weaker-than-expected export growth
due to unfavourable prices of commodities like palm oil and
This, coupled with higher oil prices inflating imports, was
likely to slightly widen the third-quarter current account
deficit from April-June, Adityaswara said.
The April-June gap was 3 per cent of GDP, already the largest
in nearly four years.
Adityaswara said with US and neighbours' interest rates
still rising, BI's stance "will be to maintain the resilience of
Indonesia's balance of payments".
The full year current account gap will likely remain below 3
per cent of GDP and efforts to rein in the deficit should bring
it down to 2.5 per cent in 2019, he said. The deficit was 1.7
per cent last year.
BI officials had previously described the central bank's
stance as "hawkish", including when it made its fifth rate hike
last month, but members of the board of governors refrained from
using the word on Tuesday.
The government has raised import tariffs on a range of
goods, delayed infrastructure projects and widened biodiesel use
to curb imports and support the rupiah.
BI expected inflation to remain within its 2.5-4.5 per cent
target range through the end of 2018. September's annual
inflation rate was 2.88 per cent.