Bank Indonesia Keeps Rates Unchanged at Highest Level Since 2009 With Rupiah Stable

Bank Indonesia kept its benchmark interest rate unchanged for a third straight month at it’s April meeting. The pause came after six consecutive hikes to tame inflation and strengthen the rupiah exchange rate. BI said the decision came on the back of a stronger currency and easing price pressures. The benchmark 7-day reverse repurchase rate now stands at 5.75%, the deposit facility at 5.00% and the lending facility at 6.50%, their highest level since 2009 and in line with market forecasts. Since August last year the central bank has lifted rates by 225bps.

Indonesia is Southeast Asia’s largest economy and exports shrank 11.3% last month, the worst performance since May 2020, amid weaker demand from advanced economies and falling commodity prices. Bank Indonesia Governor Perry Warjiyo sees domestic economic growth staying strong, with easing inflation seen boosting consumption.

Indonesia Interest Rate

The rupiah has emerged been Asia’s strongest currency in April, and held the day’s losses after the decision. Benchmark stocks-maintained gains of 0.6%. Warjiyo said the central bank expects the currency to strengthen further due to foreign inflows, attractive yields and the economy’s robust growth. The BI will continue with its rupiah stabilization measures to offset imported inflation, he said.

Key forecasts: 
2023 economic growth view retained at upper end of 4.5%-5.3% range. 1Q growth seen slightly above 5%; 2Q expansion of at least 5.1%
2023 Current account seen between a surplus of 0.4% to a deficit of 0.4% of gross domestic product.

Inflation Issue

Indonesia’s annual inflation rate fell to a seven-month low of 4.97% in March and is expected to return to the 2%-4% target range in August, earlier than the previously projected September timeline. The core gauge is projected to hover around 3% until the end of the year, after falling below the level last month for the first time since July. The rate had accelerated to 5.95% in September 2022, marking the fastest rise in consumer prices since October 2015.  Indonesia’s central bank, BI sought to rein in inflation after the government raised subsidized fuel prices earlier in August, while also supporting the rupiah currency.  

Source: TC, BI

From The TradersCommunity Research Desk