MNI STATE OF PLAY: Indonesia CB Holds Rates On Stable Rupiah

Indonesia's central bank has cited the stability of the rupiah in its decision on Thursday to maintain its benchmark interest rate as the economic recovery continues.

As expected, Bank Indonesia’s Board of Governors has kept the seven-day reverse repo rate unchanged at 3.50%. The bank cut the rate by 150 basis points in 2020, see: MNI STATE OF PLAY: Bank Indonesia Upbeat On The Economy, Rupiah.

Other key rates, the overnight deposit and lending facility rates were unchanged at 2.75% and 4.25%, respectively.

BI Governor Perry Warjiyo said the central bank was now looking for “pro-stability” rather than “pro-growth” as the economy recovered from the pandemic, with growth of between 4.7% and 5.5% expected next year.

The rupiah has been under 14,500 to the USD for most of this year, supported by strong export growth and commodity prices.

Indonesia’s economic recovery is now in a sweet spot with inflation contained at an annualized 1.75% for November, below the 2% to 4% BI target range. Bank Indonesia has been encouraged by recent data that retail sales increased 10.1% year on year and are now back to pre-COVID levels, while the bank’s consumer confidence level surged again in November.

Governor Warjiyo ruled out a 2021 rate rise several months ago, but the next move in interest rates is expected to be up, either in the third or fourth quarters of 2022.