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MNI STATE OF PLAY: Stable Rupiah Reassures Bank Indonesia

MNI (Sydney)
SYDNEY (MNI)

The Indonesian central bank will likely hold steady on Tuesday as concerns on a weaker currency have eased.

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Bank Indonesia's Board of Governors are likely confident on a stable rupiah as a two-day monetary policy meeting starts on Monday that is expected to to hold the benchmark interest rate at the 3.5% level it has been for most of this year.

With the Indonesian economy beginning to open up after the pandemic, the central bank, or BI, is under little pressure to move on rates this month, see: MNI INSIGHT: Bank Indonesia Is Confident On Pandemic Recovery.

The rate decision will be announced late Tuesday local time.

The current settings are seen as accommodative and supportive for the economic recovery, and BI is unlikely to undermine the currency with another rate cut. The benchmark rate was cut by 150 basis points in 2020.

GROWTH FORECAST CUT, INFLATION BENIGN

BI has cut its growth forecasts for 2021 several times this year and is now forecasting 3.5% to 4.3% growth for the year.

Inflation pressures continue to be benign, with the August print at 1.59% against BI's target of 2-4%.

BI has purchased another USD30 billion in Indonesian bonds direct from the government in August, has now purchased a total of USD87 billion in bonds since the pandemic began.

After these measures, the focus is now on transmitting the easy monetary policy through to the economy through financial inclusion, prudential measures and digital innovation.

BI Governor Perry Warjiyo has effectively ruled out a rate rise this year, which also suggests the bank has no intention of cutting rates further. While the next move in Indonesian interest rates is likely to be up, that is not likely to be considered until 2022.