Economic news

Indonesia central bank stays on hold, expects uncertainties to ease

2023.07.25 04:37


© Reuters. FILE PHOTO-Governor of Bank Indonesia Perry Warjiyo speaks during the annual meeting of Indonesia’s central bank with its financial stakeholders in Jakarta, Indonesia, November 30, 2022. REUTERS/Willy Kurniawan/File Photo

JAKARTA (Reuters) -Indonesia’s central bank held its key policy rates steady for the sixth straight review on Tuesday, saying current levels are enough to ensure domestic inflation stays within target this year and on expectations global uncertainties will ease.

Bank Indonesia (BI) kept the benchmark seven-day reverse repurchase rate at 5.75%, where it has been since January, a decision widely expected in a Reuters poll. Its two other rates were also left unchanged.

BI Governor Perry Warjiyo told a press conference that monetary policy remains focused on ensuring inflation stays within target and the rupiah currency remains stable.

“Going forward, with expectation that the global financial market uncertainty will ease, Bank Indonesia predicts the rupiah exchange rate will appreciate.”

The rupiah was mostly unchanged against the dollar after the announcement, at 14,995.

Inflation in Southeast Asia’s largest economy, which shot up last year amid rising food and energy prices, returned to BI’s target range earlier than expected in May and is forecast to continue easing towards the year’s end.

That has prompted some analysts to predict BI will start to consider easing monetary policy to bolster the economy amid an expected slowdown in growth as weaker demand and falling commodity prices hit exports.

Warjiyo said that a relaxation in liquidity rules would help support financing to some sectors.

BI’s decision comes as market participants brace for a likely U.S. Federal Reserve rate hike later this week, though Warjiyo said Indonesia’s interest rates will be decided based on domestic inflation and economic growth.

The trajectory of monetary policy in the United States has affected capital flows to Indonesia and the rupiah’s exchange rate. However, the currency has stabilised in the past week on expectations the Fed is nearing the end of its rate hiking cycle.

Indonesia’s annual inflation in June cooled to 3.52%, the lowest in 14 months, having peaked near 6% in September. BI raised Indonesia’s rates by a total of 225 basis points between August to January.

BI kept its 2023 economic growth outlook in a range of 4.5% to 5.3%, compared with last year’s growth of 5.3%.

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