Bank Indonesia kept its benchmark interest rate unchanged at a four-year high to support the local currency from further pressure amid expectations the US Federal Reserve might resume tightening this week.
The central bank held the seven-day reverse repurchase rate at 5.75% on Tuesday, as seen by all 30 economists surveyed by Bloomberg. The policy rate has been kept steady at that level for six straight months.
The central bank’s extended pause underscores ongoing concerns about currency weakness as markets brace for another Fed fund rate increase later this week. The rupiah has been one of the worst-performers in Asia this month, amid Bank Indonesia’s dollar buffer falling further to a six-month low in June and commodity prices taking a deeper tumble on exports.
The rupiah rate remains manageable in line with BI’s stabilization measures, Governor Perry Warjiyo said Tuesday. The currency is expected to appreciate in the coming days, as global financial market uncertainty wanes, he said.
To support the currency in the near term, the government has ruled natural resource exporters to keep their earnings partly onshore starting in August, a move expected to help improve dollar supply.
That should support the rupiah going forward, Warjiyo said.
Warjiyo and his board have repeatedly said that preserving currency stability is key to keeping consumer prices in check. The central bank is confident that headline inflation, which has returned and been within the bank’s 2%-4% target for two consecutive months, will remain within that range, the governor said.
A rate cut still looks some distance away, with the central bank expecting the economy to do better in the second-quarter than it did in the previous three months. Despite global headwinds and slowing credit growth at home, Bank Indonesia retained its 2023 growth forecast at 4.5%-5.3%.
--With assistance from Norman Harsono and Tomoko Sato.
