(Bloomberg) — Indonesia’s central bank kept its key interest rate steady as expected, pausing an easing cycle as external risks drag on the rupiah currency.
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Bank Indonesia left the benchmark BI-Rate unchanged at 6% on Wednesday, as predicted by 30 of the 41 economists surveyed by Bloomberg, with the rest expecting a quarter-point cut. Last month, the central bank surprised markets by initiating an easing cycle ahead of the Federal Reserve’s move.
“BI continues to keep an eye on the room for policy rate cuts while keeping in mind the outlook for CPI, IDR, and economic growth,” Governor Perry Warjiyo said.
The decision to stay pat suggests the weakness in the rupiah against the US dollar is in the forefront of Warjiyo and his board’s deliberations. A potential slowdown in the Fed easing and Middle East tensions saw rupiah lose over 2% against the greenback this month, earlier prompting the central bank to intervene in markets for the first time in months.
With near record-high foreign exchange reserves and an improved trade surplus, Bank Indonesia has room to intervene in the market to curb further rupiah declines. It has jacked up yields on its rupiah-denominated securities again in its latest auction to attract foreign funds.
In the longer run, the central bank is expected to maintain its stance toward a looser monetary policy to keep growth on an even clip. President-elect Prabowo Subianto, who will be sworn in on Sunday, is targeting 8% growth during his five-year term.
The central bank said on Wednesday that fourth quarter economic growth will remain solid, supported by investment, improved domestic demand, and accelerating government spending. It estimates 2024 growth at 4.7% to 5.5% and expects the pace to continue into next year.
With a low inflation environment and subdued domestic consumption, economists say Bank Indonesia could resume cutting borrowing costs as early as next month when the Fed may have cut rates again and the US election is over.
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