Indonesia raises key rate to 5.75% as end of tightening nears
INDONESIA has raised its benchmark interest rate by another quarter point, bringing the central bank near the end of its tightening cycle as it balances the need to tamp down any lingering price pressures while safeguarding growth momentum.
Bank Indonesia lifted the seven-day reverse repurchase rate to 5.75 per cent on Thursday (Jan 19). This had been predicted by 23 of 28 economists surveyed by Bloomberg; the rest had predicted a pause.
Neighbouring Malaysia unexpectedly maintained its key rate on Thursday.
The central bank’s governor Perry Warjiyo said: “The more calculated decision on policy rate increase is a follow-up step, to ensure continued lower expected inflation and inflation in a front-loaded, pre-emptive, and forward-looking measure.”
The latest hike took cumulative rate increases to 225 basis points since August 2022. It also suggested that monetary authorities in Indonesia remained focused on tempering prices.
Inflation, which unexpectedly picked up last month, may stay above the central bank’s target range of between 2 per cent and 4 per cent, as food and transportation costs rise ahead of Ramadan, which starts in March.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Bank Indonesia reaffirmed its 2023 gross domestic product (GDP) growth estimate at the midpoint of 4.5 per cent to 5.3 per cent, and a current account that could range from a surplus to deficit equivalent to 0.4 per cent of GDP. Warjiyo said that headline inflation was expected to return to the central bank’s target range in the second half of 2023.
The governor added that recovery in the economy was supporting the same for the rupiah.
Strength in the local currency bodes well for checking import costs, and in turn, headline price gains. That is thanks to foreign investors returning to emerging markets amid signs that US inflation is coming under control, dimming the chances of any aggressive rate moves by the Federal Reserve.
There are chances that the rupiah reprieve may be short-lived, as a global economic slowdown risks dragging Indonesia’s trade down further. While the trade surplus set a new full-year record at US$54.5 billion in 2022, exports have continued to shrink since hitting a high in August. BLOOMBERG
Share with us your feedback on BT's products and services
