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BI keeps interest rate unchanged as rupiah stabilizes
According to the central bank, the interest rate hike in April helped the rupiah strengthen by 1.66 percent between the end of April and May 21.
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Bank Indonesia's (BI) board of governors poses for a photo before the press at the BI headquarters in Jakarta on Nov. 11, 2023. (The Jakarta Post/Deni Ghifari)
B
ank Indonesia (BI) has kept its benchmark interest rate unchanged at 6.25 percent as it sees the rupiah stabilizing thanks to increased capital inflows following last month’s 25-basis-point (bps) rate hike.
Briefing reporters after the central bank’s two-day monthly monetary policy meeting, BI Governor Perry Warjiyo noted an increased probability of the United States Federal Reserve cutting its interest rate by the end of this year.
“At the same time, the worsening geopolitical situation [seen] in April has not continued. A decline in US treasury yields compared with mid-April has caused capital inflows to emerging countries and reduced the pressure on local currencies,” Perry said on Wednesday.
In last month’s briefing, BI decided to lift its benchmark BI Rate by 25 bps to 6.25 percent. It also raised the rates for its deposit facility and lending facility by the same amount to 5.5 and 7 percent, respectively.
The central bank characterized the move as a “preemptive measure” in light of global risks caused by the uncertain outlook for monetary policy in the US and geopolitical tension in the Middle East.
In times of conflict, investors tend to reallocate funds to so-called safe-haven assets, such as the US dollar and gold, resulting in money flowing out of emerging markets and weighing on the countries’ currencies.
In April, right before BI announced its interest rate hike, the rupiah touched a multiyear low of Rp 16,265 per US dollar.
