By CentralBankNews.info
Indonesia’s central bank left its key interest rates unchanged, saying the current rate was considered sufficient to keep inflation in line with the target and the current account at a healthy level.
The decision by Bank Indonesia (BI) to maintain its key 7-day reverse repurchase rate at 4.25 percent follows two 25-basis points cuts in August and September. This comes after two cuts by a total of 50 basis points last year after the previous benchmark rate was lowered four times by a total of 100 points.
Today’s decision comes after BI in September said its monetary policy stance had shifted to neutral and the BI governor, Agus Martowardojo, said two rate cuts were “sufficient.”
Although BI outlined a range of international and domestic risks, it was optimistic about the global economy and said Indonesia’s economy should growth faster in the third quarter than in the second quarter and overall growth this year is now “potentially higher than previously estimated.”
BI currently forecasts growth this year of 5.0-5.4 percent, rising to 5. -5.50 percent in 2018.
The central bank said it remained cautious of both international and domestic risks, such as continued consolidation of corporate and banking sectors, tightening monetary policy and fiscal reforms in the United Staes, geopolitical pressures in Europe and the Korean peninsula.
BI pointed specifically to the risks to the global economy from an increase in the U.S. federal funds rate in December, the normalization of the Federal Reserve’s balance sheet as well as the change in leadership at the Fed. In addition, there are geopolitical risks from Spain and the change in leadership in several European countries.
But despite these risks, BI sounded optimistic about the world economy, with trading volume and non-oil commodity price growth higher than originally assumed.
China’s economy is projected to be stronger than previously expected while economic growth in Europe was also higher as exports improve, investments rise and financial sector developments remain conducive.
The U.S. economy is expected to continue growth on solid consumption and production while BI said India’s economy is expected to grow but projection have been revised downward due to the negative impact of demonetization and the new GST tax.
Indonesia’s economy expanded by an annual 5.01 percent in both the first and second quarters of this year but consumption in the third quarter should rise on the back of higher government goods expenditure, the distribution of a 13th salary to civil servants and social assistance.
Exports are also seen improving, especially in mining and plantation products, while investments should improve further on robust growth in building investment and in non-construction, such as mining, plantation industries and processing industries.
Indonesia’s inflation rate eased to 3.72 percent in September from 3.82 percent in August and BI said it expects inflation to remain within its 2017 target range of 4.0 percent, plus/minus 1 percentage point, and its 2018 and 2019 ranges of 3.5 percent, plus/minus 1 percentage point.
Indonesia’s rupiah remained stable until the end of September when it weakened, with BI saying this trend was experienced by almost all world currencies due to rising expectations of rate hikes, monetary policy normalization and tax reform in the U.S.
The rupiah was trading at 13,517 to the U.S. dollar today, down 0.13 percent this year.