Bank Indonesia holds key rate at 4.25%

By BLOOMBERG

JAKARTA • Indonesia’s central bank kept its benchmark interest rate unchanged as expected, pausing after two cuts in a row, as policymakers turn their attention to risks of a weaker currency.

Governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.25% yesterday, as forecast by all 25 economists surveyed by Bloomberg. The bank has already cut rates eight times since the beginning of last year, including in August and September, to help boost growth in South-East Asia’s biggest economy.

Despite subdued inflation of 3.7% in September — within the target range of 3% to 5% — the central bank is on guard for more currency weakness that could come about from US tax reforms and interest rate increases. The rupiah has dropped 1.2% against the dollar since the August rate cut after having been relatively stable for most of this year.

The recent easing is seen as sufficient to support economic growth while inflation would remain manageable, Bank Indonesia’s assistant governor Dody Budi Waluyo told reporters yesterday. The currency faces significant risks from US tax reforms and geopolitical ructions stemming from hostilities on the Korean Peninsula, he said.

Central bank maintains growth estimate of 5% to 5.4% for 2017. Inflation may stay below 4% for the remainder of 2017. Higher economic growth is seen coming from improving consumption and retails sales. Exports are seen picking up, supported by mining and plantation products.