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A resurgence of the pandemic and a slow vaccine rollout prompted Bank Indonesia to cut its growth forecasts for the second time this year, but it kept benchmark interest rates on hold as it tries to balance the stability of the currency with an economy heavily impacted by Covid.
BI now sees growth in a range between 3.5% and 4.3%, some 100 basis points lower than its original forecast. But BI is also committed to maintaining a stable rupiah, with expectations that the next move in rates could be a hike either later this year or in early 2022.
The rupiah has traded at around 14,400 to the dollar this month, from as strong as 13,800 at the start of 2021. It strengthened after today's decision.
BI will be hoping that any improvement in economic conditions in the third and fourth quarters will relieve pressure for more accommodative policy.
It kept the seven day reverse repo rate unchanged at 3.5% today, and maintained the overnight deposit and lending facility rates at 2.75% and 4.25% respectively.