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BI holds rate, sees little exposure to US banking woes
The central bank governor says Indonesia’s banking sector has sufficient liquidity, but a negative perception of global investors may become a risk.
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Bank Indonesia's logo is seen at its headquarters in Jakarta in January 2019. (Reuters/Willy Kurniawan)
Bank Indonesia (BI) has kept its key interest rates unchanged for the second time in a row, as expected by most analysts.
Following its monthly policy meeting on Thursday, the central bank also said there was almost no direct impact on Indonesia from last week’s closure of three banks in the United States, but the uncertainty caused in global financial markets may dampen the rupiah’s exchange value.
BI announced that the benchmark rate would remain at 5.75 percent in March, the level it reached in January after being raised by a cumulative 225 basis points (bps) since August last year, while the deposit and lending facility rates were kept at 5 percent and 6.5 percent, respectively.
The decision was in line with forecasts of Moody's Analytics, Bank Mandiri and Permata Bank.
BI Governor Perry Warjiyo explained that core and headline inflation figures had both dropped faster than expected and expressed confidence that core inflation would stay between 2 and 4 percent in this year’s first half, while consumer price index (CPI) growth would come down to fall into that same target range by the end of this year.
Statistics Indonesia (BPS) announced earlier this month that core inflation had eased to 3.09 percent in February, dropping from 3.27 percent in January. However, the headline figure of annual CPI growth increased to 5.47 percent year-on-year last month, up from 5.28 percent in the preceding month, driven by a 7.62 percent rise in volatile food prices.
"Volatile food inflation [increased] last month due to rice prices, but we're entering harvest season, so it will be under control. CPI inflation will get back to below 4 percent on September, when the baseline effect due to last year’s fuel price hike has gone," Perry said.
