Bank Indonesia kept its benchmark interest rate unchanged for a third straight month on the back of a stronger currency and fading price pressures.
(Bloomberg) — Bank Indonesia kept its benchmark interest rate unchanged for a third straight month on the back of a stronger currency and fading price pressures.
The seven-day reverse repurchase rate was kept at 5.75% on Tuesday, as expected by all 30 economists in a Bloomberg survey. It has stood at that level since January, after the central bank delivered 225 basis points in rate hikes over six months.
The rupiah, which has emerged as Asia’s best performer in April, held the day’s losses after the decision. Benchmark stocks maintained gains of 0.6%.
The extended pause should help firm up Southeast Asia’s largest economy as it braces for the impact of a global slowdown. Exports shrank 11.3% last month, the worst performance since May 2020, amid weaker demand from advanced economies and falling commodity prices.
Still, investment and trade performance were assessed as “solid” by Bank Indonesia Governor Perry Warjiyo, who sees domestic economic growth staying strong, with easing inflation seen boosting consumption. He also underlined measures to boost lending.
What Bloomberg Economics Says…
“We continue to see a rate cut as the central bank’s next move, likely before year-end if the rupiah remains resilient.”
—- Tamara Mast Henderson, Asean economist
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Pantheon Macroeconomics Ltd.’s Miguel Chanco also believes there’s scope for rate cuts.
“Retail sales are barely growing year-on-year, and export growth finally descended into the red in March,” he said, penciling in a quarter-point rate cut in the last quarter of 2023 to spur growth. “Crucially, China’s reopening remains powerless in the face of weakness almost everywhere else.”
Indonesia’s central bank has ample policy space as headline inflation slowed to a seven-month low of 4.97% in March, and is expected to return to the 2%-4% target range in August — earlier than the previously projected September time-line. The core gauge — policymakers’ preferred indicator — is projected to hover around 3% until the end of the year, after falling below the level last month for the first time since July.
Peak inflation and bets the Federal Reserve could soon end its tightening cycle have also let up selling pressure on the local currency. The rupiah has gained more than 3% against the greenback in the past month, although it has weakened in the past two days along with other regional currencies.
Warjiyo said the central bank expects the currency to strengthen further due to foreign inflows, attractive yields and the economy’s robust growth. The BI will continue with its rupiah stabilization measures to offset imported inflation, he said.
–With assistance from Norman Harsono, Eko Listiyorini, Faris Mokhtar, Soraya Permatasari, Yudith Ho and Tomoko Sato.
(Updates with market reaction in the third paragraph.)
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