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BI holds rates in first 2019 meeting
Bank Indonesia (BI) welcomed 2019 by maintaining its key rate on Thursday following its first policy meeting this year, as it was deemed that the current level marked the peak of its cycle
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span>Bank Indonesia (BI) welcomed 2019 by maintaining its key rate on Thursday following its first policy meeting this year, as it was deemed that the current level marked the peak of its cycle.
After a two-day policy meeting, BI’s board of governors maintained its key rate, the seven-day reverse repo rate, at 6 percent. The central bank also maintained the deposit facility and lending facility rates at 5.25 percent and 6.75 percent, respectively.
BI Governor Perry Warjiyo said the decision was consistent with joint efforts by the central bank and the government to reduce the current account deficit down to a safe level while maintaining the attractiveness of domestic financial assets.
Going forward, he also said that the central bank would continue to optimize the policy mix and coordinate with the government and the relevant authorities to maintain economic stability and strengthen external resilience.
Perry added that the central bank remained guided by its “preemptive and ahead of the curve” policy stance in its forward-looking assessments of the economy.
He added that the central bank’s board of governors had already factored in the United States Federal Reserve’s (Fed) latest December rate hike, as well as the probability of future hikes up until March. In November, BI took the market by surprise by raising its key rate by 25 basis points.
BI senior deputy governor Mirza Adityaswara said future decisions on BI’s policy rate would be weighed by the latest developments, including the monetary tightening path of the Fed, whose chairman, Jerome Powell, previously signaled a more dovish tone for 2019.
Mirza said BI would remain cautious and focus on improving Indonesia’s balance of payment, while also maintaining the stability of the domestic economy.
“BI’s stance is very cautious as we are still looking at the current account deficit and the external resiliency,” said Mirza.
As foreign capital inflows started to trickle in during the fourth quarter last year, Perry projected the balance of payment to see a surplus of between US$4 billion and $5 billion, despite preliminary data suggesting that the current account deficit would widen to $8.8 billion.
Bank Central Asia chief economist David Sumual said there was a high probability that the central bank maintains its rate in the medium term, while adding that the ongoing volatility in the global environment had warranted BI’s cautious approach.
Despite Perry saying that the policy rate had reached close to its peak, David said it was unlikely that the central bank would ease its policy soon.
“Thus far, BI is unlikely to ease its policy in the medium term due to the global situation,” David said, citing the current account deficit as a problem that needed to be addressed due to declining commodity prices and uncertainty regarding the trade war between the US and China.
Center of Reform on Economics Indonesia research director Piter Abdullah Redjalam concurred with David, saying that monetary policy easing would not likely be pursued by BI this year.
As the market projected the Fed this year to only hike its rate by a small margin, or even hold it, Piter said BI would also follow the Fed’s trajectory.
“With regard to the Fed’s [interest rate] trajectory, I believe BI would follow suit by raising rates marginally or even holding its rates,” said Perry.
