Indonesia Holds Rate Steady At 3.50%

Indonesia’s central bank left its key interest rate unchanged on Thursday in a bid to support efforts to boost economic growth amid projected low inflation.

The Board of Governors agreed to hold the BI 7-Day reverse repo rate at 3.50 percent, the Bank Indonesia said in a statement. The previous change in the rate was a quarter-point reduction in February.

Policymakers also decided to maintain the deposit facility rates at 2.75 percent and the lending facility rates at 4.25 percent.

“The decision is consistent with the need to maintain exchange rate and financial system stability amid projected low inflation and efforts to revive economic growth,” the bank said.

Among other policy measures, the bank said it will maintain rupiah exchange rate policy to preserve stability in line with the currency’s fundamental value and market mechanisms.

Other measures included those for strengthening prime lending rate transparency, strengthening payment systems, and promoting trade and investment and local currency settlements.

The central bank retained the economic outlook for 2021 at 3.5-4.3 percent. Inflation is expected to remain within the 3.0±1 percent target corridor in 2021 and 2022.

BI also projected a low and manageable current account deficit this year at approximately 0.6-1.4 percent of GDP, that is expected to supporting the external sector resilience in Indonesia.

ING expects the BI to keep policy rates on hold for the rest of the year due to the likely negative impact on Indonesia’s growth trajectory.

“The extended pause will allow Governor Warjiyo to balance support for the economy while also helping deliver FX stability,” ING economist Nicholas Mapa said.

The economist does not see any room for the BI to trim rates further, as the eventual US Federal Reserve taper comes closer, due to expectations for sustained pressures on the rupiah.

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