Indonesia Leaves Rates Unchanged At 5.75% For Third Time
Indonesia’s central bank held its interest rates steady for the third successive meeting on Tuesday and signaled that they will remain unchanged for the rest of the year as policymakers assessed that the current level of interest rates is sufficient to anchor inflation within the target range.
The Board of Governors of Bank Indonesia decided to hold the 7-day reverse repo rate at 5.75 percent. The move was in line with economists’ expectations.
The deposit facility rate was retained at 5.00 percent and the lending facility rate at 6.50 percent.
The bank has so far hiked the benchmark rate by 225 basis points in the current tightening cycle that began in August 2022.
BI Governor Perry Warjiyo said this decision is consistent with a pre-emptive and forward-looking monetary policy stance to ensure the continued decline in inflation expectations and future inflation.
Recent official data showed that the country’s consumer price inflation eased to a 7-month low of 4.97 percent in March, but stayed above the central bank’s target range.
Bank Indonesia expects inflation to stay within the 3.0-1.0 percent range throughout the remainder of 2023, and the consumer price inflation to return to target earlier than expected.
The rupiah exchange rate stabilization policy was also continuously strengthened in order to control imported inflation and mitigate the impact of global financial market uncertainties on the rupiah exchange rate, the bank said in a statement.
The bank observed that the current domestic economic situation was strong on the back of rising domestic demand and positive export performance.
Looking ahead, private consumption is predicted to strengthen in line with increased mobility, improving consumer confidence, and increasing purchasing power in line with reduced inflation.
Capital Economics economist Gareth Leather said interest rates are likely to be left on hold for the remainder of the year with inflation falling and growth easing.
ING economist Nicholas Mapa pointed out that the rupiah is currently outperforming regional peers on renewed foreign inflows to the bond market.
“Against this backdrop, our base case would be for Warjiyo to extend his pause until the third quarter before carrying out rate cuts to help support the ongoing economic recovery,” Mapa said.
“However, should inflation slow at a more pronounced pace, the IDR maintain its stability and domestic growth prospects dim, we could see the BI bringing forward its rate cut timing to the late second quarter.”
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