JAKARTA – Indonesia’s central bank kept policy rates unchanged on July 22, defying market expectations of another rate hike following back-to-back increases aimed at shoring up the rupiah currency.
Bank Indonesia left the seven-day reverse repurchase rate unchanged at 5.75 per cent. Of 33 economists polled by Reuters, 20 had expected another 25 basis point hike, while the rest had correctly predicted no change.
It also kept the overnight deposit facility and lending facility rates steady at 4.75 per cent and 6.50 per cent, respectively.
BI has raised rates by a total of 100 basis points since May in a bid to attract foreign inflows to shore up the rupiah, which has come under pressure amid concerns about Indonesia’s fiscal health, the independence of its central bank and controversial commodity export policies.
The decision is consistent with efforts to maintain the stability of the rupiah and keep inflation within the target range, while BI’s other tools will be used to support growth, BI governor Perry Warjiyo said during an online press conference.
The rupiah was unchanged at 17,898 per US dollar before the press conference started. Since falling to an all-time low of 18,190 a dollar on June 8, the rupiah has recovered slightly, but has continued to trade near the 18,000 mark.
On top of domestic concerns, the war in Iran and its impact on oil prices have also triggered capital outflows from Indonesia, a net-oil importing country.
Many central banks in both emerging and developed markets around the world have begun raising rates to contain inflation stemming from the conflict in the Middle East.
Warjiyo said he remained certain that Indonesia’s inflation rate would remain within BI’s 1.5 per cent to 3.5 per cent target range until 2027, despite the rupiah’s weakness.
Inflation in June crept up to a three-month high of 3.34 per cent on rising prices of non-subsidised fuels, and analysts warned there could be further price pressures in the next few months from potential disruptions to food production from drier-than-usual weather caused by the El Nino weather pattern. REUTERS
