Bank Indonesia: Polls won’t stop rate hike

Jakarta • Indonesia’s central bank, faced with a deepening currency rout, won’t let an upcoming presidential election prevent it from raising interest rates if necessary.

Bank Indonesia (BI) is independent and its future policy action will be determined by economic data, deputy governor Dody Budi Waluyo said in Jakarta last Friday.

The bank has raised interest rates four times since May to help stabilise the rupiah, including a surprise 25 basis- point move at its most recent meeting in August.

“The latest interest-rate hike, for instance, was not driven by the government or others,” he said. “It’s in BI’s calculation. If we see that it is the right time to increase the interest rate, we will do it.”

Campaigning for April’s presidential vote kicks off next month, with President Joko Widodo seeking to secure a second term in office in the world’s fourth-most populous nation.

The rising cost of living is a key concern for voters, and less than a year ago Jokowi, as the president is known, was making the case for lending rates to “fall, fall and fall”.

With Indonesia being swept up in the global emerging-market rout, Jokowi’s focus has turned to stabilising the currency — which is down 7% against the dollar this year to be the second-worst performing currency in Asia — and keeping inflation under control.

The central bank has “calculated all the risks, including ones related to presidential and regional elections,” Waluyo said. “All this time, we have taken the election factor into account in formulating our monetary policy.”

There’s still room to raise rates “because global pressure is still there”, he said.

BI sees the US Federal Reserve hiking rates two more times this year and twice next year, he said.

Future policy action will be “data dependent and we’ll do it in a measured way”, he said.

The central bank, which has drained foreign reserves by more than 10% this year to halt the currency’s slide, will allow the rupiah to “depreciate gradually as long as it is still in line with its fundamentals”, Waluyo said.

Jokowi’s opponent in the presidential race is former military general Prabowo Subianto, who was defeated in 2014 and is working hard now at cultivating an image of being in touch with the people on bread-and-butter issues.

Jokowi’s economic record has been mixed. While the economy has been growing steadily at about 5%, that’s lower than the 7% goal the president had when he took office. Inflation is subdued, reaching 3.2% in July, and forecast to be in a range of 2.5% to 4.5% next year. — Bloomberg