Indonesia’s central bank kept its main interest rate unchanged for a fifth month, refraining from monetary easing that could further weaken one of Asia’s worst-performing currencies.
Governor Agus Martowardojo and his board held the reference rate at 7.5%, Bank Indonesia (BI) said in Jakarta on Tuesday, an outcome predicted by all 20 economists surveyed by Bloomberg News. The authority also maintained the rate it pays lenders on overnight deposits, commonly referred to as the Fasbi, at 5.5%.
The decision reflects the challenge for Indonesian policy makers grappling with both growth and currency risks, as stock market ructions and a slowing economy in China threaten exports while the impending US rate increase puts pressure on the rupiah. Inflation above 7% and a current-account deficit also make cutting rates difficult in an economy growing at the slowest pace since 2009.
“Although domestic growth fundamentals suggest BI could cut rates, inflation remains well above their target, and financial market volatility suggest keeping rates on hold is prudent,” Australia and New Zealand Banking Group economists Daniel Wilson and Glenn Maguire said in a note. “We still expect BI to reassess their policy position once the Fed begins hiking rates, and disinflation gathers steam through Q4 this year.”
The rupiah fell 0.3 to 13,338 per US dollar as of 4.33pm in Jakarta. The benchmark stock index closed up 0.2%.
The rate decision is in line with the central bank’s efforts to keep inflation within its target of 3% to 5% this year and next, the authority said in a statement. Bank Indonesia said it expects to achieve that target in 2015.