By CentralBankNews.info
Indonesia’s central bank left its benchmark 7-day reverse repurchase rate steady at 4.25 percent, as expected, and confirmed that it still expects economic growth this year of 5.1-5.5 percent while inflation should remain within the bank’s target range despite “rising external pressures.”
Bank Indonesia (BI), which lowered its key rate by 200 basis points in 2016 and 2017, also reiterated its recent view that it considers this past easing of monetary policy as sufficient to boost the momentum behind the economic recovery.
However, BI also echoed other central banks’ concern of the risks facing the global economy from increased uncertainty in financial markets from a normalization of U.S. monetary policy and “inward-oriented trade policy, geopolitical risks from the Middle East, rising oil prices, and the possibility of a trade war between the United States and China.
Indonesia’s economy, which grew 5.1 percent last year, is forecast to expand at a faster rate in the first quarter of this year than in the same 2017 quarter, buoyed by domestic demand, particularly investment, BI said.
Investments are up in building and non-construction investment, supported by government and private infrastructure projects, and mining investment.
BI’s first quarter business survey shows higher business activity along with improved performance by non-financial corporations while private consumption is expected to rise due to higher income and accelerated social assistance.
Exports of mined commodities and manufacturing is also positive while imports are seen rising, particularly of capital goods and raw materials.
Indonesia’s Gross Domestic Product grew by an annual rate of 5.19 percent in the fourth quarter of last year, up from 5.06 percent in the third quarter.
Indonesia’s trade balance recorded a surplus of US$1.09 billion in March, after a deficit of $0.05 billion in February, with a surplus in the first quarter of $0.28 billion, helping boost foreign reserves to $126.0 billion at the end of March, the equivalent of 7.7 months of imports and serving of official external debt.
The current account deficit is forecast to be in a range of 2.0-2.5 percent of GDP in 2018, below the 3.0 percent limit considered safe.
Indonesia’s inflation rate rose to 3.4 percent in March from 3.18 percent in February – within the BI’s target of 3.5 percent, plus/minus 1 percentage point – and is expected to remain in the range this year, BI confirmed.
The exchange rate of Indonesia’s rupiah depreciated in February and March, with BI attributing this to an improvement in U.S. economic data along with expectations of more aggressive rate hikes by the U.S. Fed and the risk of a US-China trade war.
These factors encouraged the reversal of foreign capital and put pressure on the exchange rate of currencies worldwide, including the rupiah.
However, the rupiah has stabilized in April, helped by BI’s “stabilization measures,” continued control of inflation, a rising rating on its debt, and a surplus in the trade balance that boosted the inflow of foreign portfolio capital.
Last week Moody’s joined other ratings agencies and upgraded Indonesia’s rating to Baa2 from Baa3 and raised its outlook to stable, noting the country’s control of budget deficits and inflation.
The rupiah was trading around 13,790 to the U.S. dollar today, down 1.6 percent this year.
Indonesia’s parliament earlier this month confirmed Perry Warjiyo as the next governor of BI. Warjiyo, who has been deputy governor since April 2013, will take over from Agus Martowardojo when his term expires in May.