Indonesia central bank holds rates, keeps focus on rupiah
THE central bank of Indonesia left its benchmark interest rate at 5.75 per cent at the latest monthly monetary meeting on Thursday (Sep 21).
In a press conference, governor of Bank Indonesia Perry Warjiyo said the decision aligns with the central bank’s commitment to maintaining inflation within the 2 per cent to 4 per cent range throughout 2023. At the same time, the central bank aims to bolster the rupiah to counteract imported inflation and minimise the potential adverse impact of global financial market volatility.
The central bank anticipates that the Federal Reserve will raise its benchmark interest rate in November, having announced a pause at its latest meeting that ended on Wednesday.
“We expect the Federal Funds Rate to continue rising in November. As a result, the pressure on foreign capital flows will remain high, necessitating a policy response,” he said.
Warjiyo said the current monetary tightening measures in the US are a reaction to the strong state of the US economy. The rise in wages and the utilisation of accumulated savings are factors that continue to fuel elevated inflation.
Bank Indonesia said pressure on the rupiah exchange rate remains within a controllable range, with the rupiah having experienced a 0.98 per cent depreciation against the US dollar year to date.
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Last month, Bank Indonesia introduced Bank Indonesia Rupiah Securities (SRBI). These offer “very attractive” yields for foreign investors, and are backed by the central bank’s holdings of government bonds.
The instrument was designed to attract capital inflows, absorb excess rupiah liquidity in the domestic financial market, and offer stability to the rupiah. This initiative comes as Indonesia’s current account and balance of payments have shifted into deficit.
At its first auction, the central bank received incoming bids for SRBI amounting to 29 trillion rupiah (S$2.6 billion) – 4.2 times the target of seven trillion rupiah.
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Handy Yunianto, Mandiri Securities’ head of fixed income, said the SRBI auctions would provide investors with an alternative as the government reduces its bond sales.
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