Indonesia holds rate to focus on growth

JAKARTA • Indonesia’s central bank left its benchmark interest rate unchanged for a fourth month as the US Federal Reserve’s (Fed) shift to a prolonged pause gives policymakers in South-East Asia’s biggest economy room to support growth.

The seven-day reverse repurchase rate was left at 6% yesterday, as predicted by all 36 economists surveyed by Bloomberg. Governor Perry Warjiyo and his board raised the rate by a total of 175 basis points last year to head off a market rout in developing economies and a slump in the currency, triggered by tighter US monetary policy.

“The decision is consistent with efforts to strengthen external stability, especially to control the current account deficit and maintain the attractiveness of domestic financial assets,” Warjiyo told reporters in Jakarta.

Bank Indonesia (BI) remains cautious though, given concerns about the current-account deficit and the economy’s vulnerability to currency swings. The deficit — which reached a four-year high of 3% of GDP last year — was a key reason why Indonesia took a bigger knock in the emerging-market rout than some of its peers.

The rupiah has gained 1.9% against the dollar so far this year after dropping 5.7% in 2018. Warjiyo said the central bank would apply “accommodative macroprudential” policies to push domestic demand, and announced an increase in the loan-to-funding ratio to help banks spur lending to businesses.

While the stance on the policy rate is “aimed at external stability”, the central bank is “still pushing for economic growth”, Warjiyo said.

Low inflation means policymakers can stay on hold for longer. Consumer-price growth eased to 2.57% in February, the slowest pace since November 2009, and close to the lower end of the central bank’s 2.5% to 4.5% target band. — Bloomberg