Indonesia central bank holds rates amid market uncertainties
It also leaves its overnight deposit facility and lending facility rates unchanged at 5% and 6.5%, respectively
[JAKARTA] Indonesia’s central bank kept policy rates unchanged for a second straight review on Wednesday (Mar 19), as expected, against a backdrop of turmoil in local markets on concerns about global trade wars and the government’s fiscal policy.
Bank Indonesia (BI) held the benchmark seven-day reverse repurchase rate steady at 5.75 per cent, as expected by 19 of 31 analysts polled by Reuters. The rest had expected a rate cut.
The central bank also left its two other key policy rates unchanged.
The decision came after the rupiah and Jakarta’s main stock index dropped sharply on Tuesday, as traders worried about the government’s fiscal strategy and the country’s economic growth outlook.
The rupiah was little changed at 16,520 per US dollar – near to its lowest levels in five years – following the central bank’s decision on Wednesday.
Governor Perry Warjiyo said the currency should be strengthening based on Indonesia’s fundamentals, but was under pressure due to technical factors.
BI had previously said its next interest rate cut was a matter of timing, reflecting the pressure on the rupiah, which has also been weakened by capital outflows linked to uncertainty about US economic policy and interest rates.
“Looking forward, BI will continue to observe prospects of inflation and economic growth to take advantage of room for a BI rate cut, while considering the rupiah movement,” Warjiyo told a press conference.
February saw the first annual fall in the consumer price index since March 2000, largely due to the government’s substantial electricity price discount, which meant the index was well outside BI’s inflation target range of 1.5 to 3.5 per cent.
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Growth in South-east Asia’s largest economy has for years stuck around 5 per cent. Indonesian President Prabowo Subianto has a target of lifting growth to 8 per cent during his term, which runs until 2029.
BI kept its growth outlook for 2025 at 4.7 to 5.5 per cent.
“My view is BI will be able to cut its rates only one time in 2025, as uncertainties over the global trade and economy and the Indonesian political situations will likely remain high, which will also keep emerging markets unstable for the time being,” said SMBC economist Ryota Abe. REUTERS
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