Bank Indonesia Holds Rates, Eyes Rupiah Post-Fed Hike
Jakarta. Indonesia's central bank kept its key interest rate unchanged on Thursday (15/12), as expected, and said future policy decisions would depend on inflation and a stable rupiah currency amid rate rises by the US Federal Reserve and other developed economies.
Bank Indonesia's (BI) rate decision came hours after the Fed's much-anticipated hike. Also on Thursday, China raised short- and medium-term rates and the Philippines central bank kept its key rate unchanged.
BI held the seven-day reverse repurchase rate at 4.25 percent for a third straight month. The deposit facility and lending facility rate were kept at 3.50 percent and 5.00 percent respectively.
All 21 analysts polled by Reuters expected the central bank to hold rates.
BI has cut the key rate twice this year, in August and September, surprising the market both times, in a bid to boost lending and economic growth.
In 2016, it cut the rate six times by a total of 150 basis points. The easing was facilitated by lower inflation rates.
Room for further easings in 2018 looked "relatively limited," said Dody Budi Walujo, a senior BI official, highlighting the risks from expectations of further Fed rate hikes and normalization of its balance sheet.
"We have to be careful as normalization of monetary policy in developed countries will continue," Dody told a briefing.
Future rate decision would depend on Indonesia's inflation remaining tame and the rupiah's level against the dollar, he said.
Sufficient Support
Thursday's decision "is consistent with efforts to maintain macroeconomic stability and is sufficient to support domestic economic recovery," BI said.
Inflation remains low, by Indonesian historical standards, but the scope for further cuts will be limited as higher US rates could cause outflows and hurt the rupiah.
This year, the currency has weakened about 0.7 percent, but it has declined around 3 percent since a peak in early September.
On Thursday, the rupiah strengthened a touch despite the Fed hike, while Indonesia's main share index hit a 10-year high.
Indonesia's 200 bps of rate cuts since 2016 have not been able to kick-start economic growth, which remains at about 5 percent.
Consumption, the biggest chunk of Indonesia's economy, remains sluggish.
Some economists still expect BI to cut rates again next year.
"We are sticking with our view that the central bank will cut interest rates again. However, further easing is likely to be very gradual, and also dependent on the rupiah holding up against the dollar," Gareth Leather, senior economist at Capital Economics said in a note.
Reuters
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