Indonesia central bank keeps rates steady to support wobbly rupiah

[JAKARTA] Indonesia's central bank kept its key interest rate steady at a record low on Thursday, holding fire after a bout of monetary support during the pandemic, and pledged to strengthen currency intervention amid global market uncertainty.

Bank Indonesia (BI) left the benchmark seven-day reverse repurchase rate unchanged at 3.50 per cent, as widely expected in a Reuters poll, after cutting them in February.

"The rate decision was in line with the need to maintain rupiah stability amid rising uncertainty in the global financial market," Governor Perry Warjiyo said in a virtual news briefing.

Policymakers are trying to balance the need to support Indonesia's coronavirus-hit economy, South-east Asia's largest, with concerns further monetary easing could weigh on the rupiah, already under pressure due to capital outflows.

The rupiah has fallen more than 3 per cent in the past month as investors dumped riskier assets broadly as rising US bond yields sparked volatility in global markets.

It opened 0.5 per cent higher after the Federal Reserve reiterated its commitment to keeping US interest rates low, but pared some of that after BI's decision.

Mr Warjiyo said the economy continues to improve and that the central bank had been "aggessive" in its monetary easing last year, having cut rates by a total of 150 basis points since the pandemic started.

Indonesia's coronavirus-hit economy suffered its first full-year contraction in over two decades in 2020, but is expected to rebound as a mass vaccination programme is rolled out.

Mr Warjiyo said the central bank would boost efforts to stabilise the currency including through a "triple" intervention, a term BI uses for intervention in the spot foreign exchange, domestic non-deliverable forward and bond markets.

Analysts expect BI to have limited scope to ease monetary policy given the global market volatility and the monetary easing it has implemented so far.

"There is a sense that it will get increasingly hard for BI to find more rabbits to pull out of its hat," said Wellian Wiranto, an economist at OCBC.

BI has said it expects the economy to grow between 4.3-5.3 per cent this year, rebounding from a 2.07 per cent contraction last year.

REUTERS