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BI keeps rate on hold, banks on portfolio inflows to buoy rupiah
A weak rupiah exchange rate limits Bank Indonesia’s scope for further monetary policy easing at this time, but the central bank is pinning its hopes on the appeal of Indonesian stocks and bonds to lift the currency’s worth.
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The logo of Bank Indonesia (BI) is seen in front of the central bank's building in Jakarta. Bank Indonesia (BI) has forecast a U-shaped recovery for the country’s economy as the coronavirus pandemic took a greater toll than previously expected, threatening to cause a deep contraction in the second quarter. (JP/Rafaela Chandra)
B
ank Indonesia (BI) has kept its key interest rate unchanged amid a weak rupiah exchange rate, but the central bank has pinned its hopes on portfolio inflows to lift the currency’s worth.
Following the central bank’s monthly policy meeting in Jakarta on Wednesday, BI Governor Perry Warjiyo announced in a press conference that the BI Rate remained at 5.75 percent, which he said was “consistent with the endeavor to maintain inflation” and the “rupiah exchange rate” as well as “to push economic growth”.
“Global uncertainty has increased due to the widening US import tariff policy,” said Perry.
He pointed out that economies including Japan and Europe had suffered a “ripple effect” from the US tariffs, compounded by stagnant domestic demand resulting from low business confidence and slowing exports, which in turn had impacted inflows to emerging countries.
However, the global capital market had begun to see a shift as bond investments were rerouted into emerging markets, albeit only “partially, not yet strongly”, Perry said, before noting that a lot of investment was also going into gold.
“We still believe in Indonesia’s financial instruments, whether they are government bonds, stocks or [BI bonds]; they are fundamentally still attractive, because the economic growth remains high,” said Perry.
“The rupiah, fundamentally, should also have strengthened. It should have strengthened, so the pressures taking place against rupiah were due to technical factors by virtue of global uncertainty,” he added.
