Indonesia Holds Key Rate as Run of Hikes Helps Stabilise Rupiah

Jakarta, MINA — Indonesia’s central bank left its benchmark interest rate unchanged on Tuesday as a more stable currency gives policy makers some breathing room after five hikes since May.

The seven-day reverse repurchase rate was held at 5.75%, in line with the forecasts of 21 of the 30 economists surveyed by Bloomberg.

Bank Indonesia’s 150 basis points of rate increases since mid-May and steps taken by the government to curb imports are starting to pay off: investors pumped $3.7 billion into government bonds in the third quarter compared with almost $4 billion of outflows in the previous three months.

That’s helped to keep the rupiah fairly stable since Oct 5, restricting its decline for the year to about 11% against the dollar amid a global emerging market rout sparked by rising US interest rates.

With the US Federal Reserve on track to tighten further and more market volatility still in store, Bank Indonesia isn’t out of the woods yet. Most economists surveyed by Bloomberg see Indonesia hiking rates into next year.

For now, policy makers can hold off on raising rates given a benign inflation environment, weaker economic growth prospects and a surprise trade surplus in September. Consumer prices rose at their slowest pace in more than two years at 2.9% in September, well within the central bank’s target band of 2.5% to 4.5%.

Finance Minister Sri Mulyani Indrawati told lawmakers last week a weaker rupiah will weigh on the economy, which she said may expand 5.1% next year, compared with an initial forecast of 5.3%. Authorities are also taking stronger steps to rein in a current-account deficit of 3% of GDP, one of the key risks to the currency. T/RS5/RS1)

Mi’raj Islamic News Agency (MINA)