Bank Indonesia Holds Key Rate Unchanged At 5.75%
Indonesia’s central bank left its benchmark rate unchanged for the sixth consecutive meeting on Thursday, as expected, as policymakers assessed that the current policy stance is enough to maintain the inflation within the target range this year.
The Board of Governors of Bank Indonesia, led by Governor Perry Warjiyo, decided to hold the seven-day reverse repo rate at 5.75 percent.
The deposit facility rate was retained at 5.00 percent and the lending facility rate at 6.50 percent.
The central bank hiked the benchmark rate by 225 basis points in the current tightening cycle that began in August 2022.
Warjiyo said the policy is focused on strengthening the stabilization of the rupiah value to control imported inflation and mitigate the propagating impact of global financial market uncertainties.
Recent official data showed that the country’s consumer price inflation eased to a 14-month low of 3.52 percent in June and remained within the central bank’s target range of 2-4 percent.
Bank Indonesia expects inflation to stay within the 3.0-1.0 percent range throughout the remainder of 2023 and 2.5-1.0 percent in 2024.
The bank expects the domestic economy to grow faster than expected in the second quarter of 2023, thanks to higher household spending and investment.
The central bank continued to project economic growth of 4.5-5.3 percent for this year.
The bank reiterated that continued measures may be taken to reinforce the Rupiah currency rate stabilization policy through triple intervention and twist operations in order to reduce the risk of spreading uncertainty in global financial markets.
“We doubt BI will resort to additional tightening just yet and believe the Bank will likely be on hold for at least two more meetings,” ING economist Nicholas Mapa said.
“Any decision to cut rates will likely be tied to IDR stability and we expect Governor Warjiyo to be very open to rate cuts by October.”
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