Bank Indonesia held its benchmark interest rate as cooling inflation and a stronger rupiah allowed a pause in one of Southeast Asia’s most aggressive tightening cycles post-pandemic.
(Bloomberg) — Bank Indonesia held its benchmark interest rate as cooling inflation and a stronger rupiah allowed a pause in one of Southeast Asia’s most aggressive tightening cycles post-pandemic.
The central bank left its seven-day reverse repurchase rate unchanged at 5.75% on Thursday, as seen by 26 of 28 economists in a Bloomberg survey. It’s the central bank’s first hold since July, before it embarked on a 225 basis-points of rate hikes to get a grip on surging food and fuel prices.
The outlook for Southeast Asia’s biggest economy has changed significantly since. Inflation dipped to a five-month low in January, aided by lower transport costs and an extensive government push to distribute food supplies across markets and villages. The gauge is seen by BI to return to the 2%-4% target by the second half of this year, Governor Perry Warjiyo reiterated Thursday.
He said inflation has eased due to the tight policy, while seeing no damage to the economic recovery from the current monetary settings.
Meanwhile, the rupiah is by far the best performing currency in Asia, gaining more than 2.5% year-to-date. Though it’s weakened slightly this month amid bets of a still-hawkish Federal Reserve, the currency should be underpinned by a healthy trade surplus and a bid to lure back more exporters’ dollar earnings.
Warjiyo has telegraphed the rate pause since January, saying policymakers have done enough to tamp down price pressures. Attention now turns to economic growth, as Indonesia’s exports sector — its star performer in 2022 — starts to show weakness from lower commodity prices. Retail sales and imports likewise remain soft, though consumer optimism is steadily improving.
–With assistance from Norman Harsono, Eko Listiyorini and Tomoko Sato.
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