MNI STATE OF PLAY: Bank Indonesia Upbeat As Rupiah Stabilises

Bank Indonesia is growing increasingly upbeat about the economic outlook but monetary policy will need to remain accommodative for some time to come, policymakers said in a statement on Thursday.

The rupiah exchange rate, a key focus for the central bank, has also stabilised in recent weeks, helped by the return of foreign capital inflows and BI's stabilisation measures. At around14,470 to the dollar this week, the rupiah is only marginally weaker than at the beginning of the year and has recovered after a slide in April, reflecting, the bank said, "improved investor perceptions of the domestic economic outlook."

Keeping benchmark rates unchanged for the fourth consecutive month, with the 7-day repo rate at 3.5% and the deposit facility at 2.75%, BI pointed to positive signs as the economy recovers.

Improvements in both the global and domestic economies continued in the second quarter of 2021, the central bank said, citing stronger household consumption, retail sales and manufacturing PMI data in Indonesia. The country's export performance has also improved and GDP growth is still forecast in the 4.1% to 5.1% range this year.

"Nevertheless, loose liquidity conditions have not optimally fed through to drive economic growth amidst a lower velocity of money in the economy in line with compressed domestic demand," BI said.

INFLATION UNDER CONTROL

Inflation was "under control" at an annualised 1.68% against the target range of 2% to 4%.

Other indicators, including the balance of payments, were "predicted to remain favourable" while the current account deficit was forecast to stay low, "driven by a continuing surplus in the goods account."

The bank also emphasised an acceleration of digitisation of the Indonesian payment system as a key measure to drive the economy. BI recently announced plans for a digital rupiah, and earlier this week outlawed the use of cryptocurrencies as a payments tool.