Jakarta - Indonesia’s
central bank kept its benchmark interest rate unchanged as expected and
signaled it will maintain its neutral stance if inflation and the currency
remain in line with forecasts.
Governor Agus Martowardojo
and his board held the seven-day reverse repurchase rate at 4.75 percent, as
forecast by all 28 economists surveyed by Bloomberg. The bank went on a cutting
spree last year, lowering rates six times, but has been on hold since the last
move in October as inflation pressures picked up.
“We will not change our
stance as long as there’s no sign of an impact on inflation, in particular core
inflation, and the expectation of depreciation in the exchange
rate,” Assistant Governor Dody Budi Waluyo told reporters in Jakarta.
Inflation which hit a
14-month high of 4.3 percent last month, mainly due to higher energy costs is
set to remain elevated through June as Indonesians mark Ramadan, the Muslim
fasting month when food prices generally spike. The central bank aims to keep
inflation in a range of 3 percent to 5 percent.
Martowardojo said last week
that government-controlled prices which climbed 9.14 percent in May from a year
earlier and include costs like electricity tariffs would continue to be a
concern for the central bank board.
Bank Indonesia eased
policy last year to help support an economy that grew 5 percent in 2016. The
World Bank said in its quarterly economic report on Thursday that growth will
probably reach 5.2 percent this year and 5.3 percent in 2018. The central bank
is forecasting expansion of 5 percent to 5.4 percent this year.
“Looking ahead, the economy
would benefit from further support from the central bank," though a rate
cut is unlikely, said Gareth Leather, a senior Asia economist at Capital
Economics Ltd. in London.
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Tighter US monetary
policy is also giving Indonesian policy maker’s reason to pause, given the
potential for foreign outflows from emerging markets and currency volatility.
The Federal Reserve raised interest rates on Wednesday for a second time this
year and signalled it would continue on its tightening path.
Indonesia’s rupiah has gained 1.4 percent against the dollar
this year, buoyed by inflows from a tax amnesty and an improving growth
outlook. The currency was at 13,286 against the dollar as of 5:30 p.m. in Jakarta. The yield on
benchmark 10-year government bonds dropped to 6.84 percent, the lowest rate
since Aug. 18, according to data compiled by Bloomberg.