The central bank sees a slower pace of US rate hikes next year and expects the current account deficit to ease
By BLOOMBERG
JAKARTA • Indonesia’s central bank left its benchmark interest rate unchanged after six hikes since May and a more cautious US Federal Reserve (Fed) helped to stem a rout in the currency.
The seven-day reverse repurchase rate was left at 6% yesterday, in line with almost all of the 26 economists surveyed by Bloomberg. The central bank, which has followed the Fed in tightening policy this year, said it sees a slower pace of US rate hikes next year and expects the current-account deficit to ease.
“Bank Indonesia believes that the current interest-rate level is still consistent with efforts to lower the current- account deficit to reach the safe level and to maintain the attractiveness of domestic financial assets, including by taking into account the trend of global interest rate movement in the coming months,” governor Perry Warjiyo told reporters in Jakarta.
Bank Indonesia has been one of the more aggressive central banks in Asia this year, surprising economists with a 25 basis-point (bp) hike last month.
Warjiyo said the bank took investor confidence and the Fed policy action into account, adding it expects two rate hikes in the US next year. It also cited slowing growth in Europe and China.
The domestic economy is forecast to expand 5% to 5.4% in 2019, while inflation is seen within the central bank’s target range of 2.5% to 4.5%.
Consumer prices remain subdued, rising 3.2% in November from a year ago.
The central bank sees inflation averaging 3.2% this year. The rupiah has gained almost 3% against the dollar this quarter as foreign investors pumped more than US$2.5 billion (RM10.43 billion) into government bonds since the beginning of October.
“The decision was in line with our expectations, mainly on the back of a less aggressive Fed, but Bank Indonesia will continue to be vigilant towards external risks,” said Enrico Tanuwidjaja, the head of economics and research for PT UOB Indonesia in Jakarta.
“We think the central bank is starting to consider impacts of a global economic slowdown that will naturally close the imbalance in domestic and external demand,” said Wisnu Wardana, a Jakarta-based economist at PT Bank Danamon Indonesia.
“Bank Indonesia sounds comfortable that it has done enough with interest- rate adjustments. It indicated that the current level is sufficient to maintain the yield appeal of Indonesian government bonds — even factoring in another 50bps of rate hikes by the Fed next year.
“In our reading of the tea leaves, this doesn’t mean more hikes are out of the question, only that the central bank will now lean more heavily on direct intervention in the currency market to stabilise the rupiah,” said Tamara Henderson of Bloomberg Economics.
The current-account def icit remains a worry for policymakers after it ballooned to 3.4% of GDP in the third quarter. The central bank sees the deficit coming down to 2.5% of GDP in 2019 from 3% this year.
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