Bank Indonesia Keeps Interest Rates Unchanged

BY :TABITA DIELA

MARCH 16, 2017

Jakarta. Bank Indonesia, the country's central bank, has left interest rates unchanged after a policy meeting this week to counter the effects of higher United States interest rates and rising inflation in the country.

The seven-day reverse repo rate stayed at 4.75 percent for five consecutive months. Bank Indonesia also decided to keep its deposit facility rate — the rate paid to commercial lenders for placing rupiah-denominated funds with the central bank — at 4 percent and the lending facility rate — the rate of borrowing short-term liquidity from central bank — at 5.5 percent.

"The decision is consistent with Bank Indonesia's efforts to maintain economic and financial stability amid global uncertainty," Tirta Segara, an executive director at Bank Indonesia, said in a press conference on Thursday (16/03).

The central bank attributed global uncertainty to rising global inflation, US economic policies under the new administration and geopolitical risks following elections in several European countries.

The US Federal Reserve, as expected, raised benchmark interest rates by 25 points on Wednesday on the back of steady economic and job growth in that country.

Rising interest rates, Tirta said, will increase the value of the US dollar against other currencies, including the Indonesian rupiah. The increased rates should also spur Indonesia's borrowing costs.

Keeping benchmark rates unchanged is also in line with Bank Indonesia's effort in stabilizing the rupiah exchange rate to keep the currency "on its fundamentals," according to Tirta.

According to Bank Indonesia's Jakarta Interbank Spot Dollar Rate, the rupiah strengthened 0.7 percent this year and traded at Rp 13,336 against the US dollar on Thursday.

Annual inflation was 3.83 percent in February, a notable rise compared to the 3.49 percent inflation rate in January. Bank Indonesia will seek to maintain the rate of inflation between 3 to 5 percent this year.

Dody Budi Waluyo, director for monetary and economic policy at Bank Indonesia, said the central bank is keeping its so-called "cautious" accommodating stance.

"We are ready in any position in case we have to increase rates or lower them as risks can arise at anytime from global uncertainty, inflation or exchange rates," Dody said.

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