JAKARTA: Bank Indonesia kept its benchmark reference rate steady for a fifth straight month, saying the current level was consistent with efforts to meet its inflation target this year.
The policy stance will also help lower the country’s large current-account deficit, which unnerved investors last year when it climbed to record highs and sparked a sell-off in the rupiah.
Southeast Asia’s largest economy appears to have turned a corner with its trade balance reverting to surplus in February and inflation easing. With confidence returning to the rupiah, Bank Indonesia has held rates steady this year while other major emerging economies were forced to raise them to fend off outflows.
“Provided inflation falls back as expected and there is no renewed pressure on the rupiah, the next move in rates is likely to be downwards, but probably not before the end of the year,” said Krystal Tan, Asia economist at Capital Economics.
All analysts had expected the policy rate to be kept on hold as pressures had eased on both the current-account deficit and the rupiah. The Indonesian currency has rebounded, up 7.7 percent so far this year to become Asia’s best performing currency after being its worst last year.
The central bank also held the deposit facility rate (FASBI) and lending facility rate at 5.75 percent and 7.50 percent, respectively.
Singapore-based economist at OCBC, Wellian Wiranto, said the central bank may face pressure to cut rates on some views easing inflation should be followed with loose monetary policy. “Loosening the belt to allow more gorging may seem immediately gratifying but is hardly helpful to the economy’s long-term health,” Wiranto said.
Bank Indonesia said the economy in the first quarter would grow 5.77 percent, a shade faster than the fourth quarter, bolstered by the global recovery. The bank last month trimmed its growth forecast to 5.5-5.9 percent this year from 5.8-6.2 percent, despite an increase in spending for legislative and presidential elections.
Indonesia has reaped from a recovery in commodity prices, mainly coal and crude palm oil, which helped turn its trade balance in February to a surplus of $790m from a $450m deficit the previous month. Reuters
