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Rates unchanged as BI chief deems economy ‘resilient’
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B
ank Indonesia (BI) has kept its benchmark interest rate at 3.5 percent for a seventh consecutive month as it aims to support the economic recovery from the COVID-19 crisis.
The central bank also retained last month's benchmark deposit facility rate of 2.75 percent and lending facility rate of 4.25 percent.
“Bank Indonesia also continues to optimize its policy mix to maintain macroeconomic and financial system stability and support further economic improvement,” BI Governor Perry Warjiyo said during a press conference on Tuesday.
He went on to say that the central bank was sticking to its GDP growth forecast of 3.5 to 4.3 percent and remained committed to keeping inflation in the target range of 2 to 4 percent this year.
Read also: BI holds policy rate at 3.5%, sets up MSME financing boost
Indonesia achieved a trade surplus of US$4.7 billion in August, the highest ever recorded by Statistics Indonesia, largely thanks to high prices and large export volumes of key Indonesian commodities like crude palm oil (CPO) and coal.
Perry added that the country’s current account deficit was predicted to fall between 0.6 percent and 1.4 percent of GDP this year, far better than the approximately 3 percent in 2018.
This and high foreign exchange reserves made Indonesia’s economy “resilient” to a possible tightening of monetary policy by the United States Federal Reserve (Fed).
“God willing, with the various assessments and economic conditions, the impact of the Fed's tapering can be well anticipated and [will be] smaller than the 2013 taper tantrum,” he said, referring to the strong global market reaction when the Federal Reserve announced a reduction of its asset purchases in 2013.
The move roiled bond and equity markets in emerging economies as investors pulled funds out.
Read also: Fed taper fears: How vulnerable is Indonesia’s economy?
Bank Mandiri economist Faisal Rachman said he expected BI to keep its benchmark seven-day reverse repo rate at 3.50 percent until the end of 2021, as the Fed’s tapering and China’s Evergrande crisis would affect markets across the globe.
“We [deem] leaving the rate unchanged pivotal, not only for promoting economic recovery but also for curbing the capital outflow risk and maintaining stability,” he said in a statement on Tuesday.
Faisal added his view that inflation in Indonesia would remain muted and the current account deficit would widen but remain manageable.
