Indonesia Keeps Rates On Hold

Indonesia’s central bank left its key interest rate unchanged after lowering it four times this year, as the rupiah remained weak amid the sharp economic contraction.

The Board of Governors of Bank Indonesia decided to retain the BI 7-day reverse repo rate at 4.00 percent.

The overnight deposit facility rate and the lending facility rate were maintained at 3.25 percent and 4.75 percent, respectively.

The bank said the decision was consistent with the need to maintain external stability, amidst predicted inflation to remain low. The central bank maintained its inflation target at 2-4 percent for 2020.

In order to support economic recovery, the bank had reduced the rates four times so far this year.

The bank said it will continue to strengthen the monetary expansion with the acceleration of the fiscal stimulus to underpin economic recovery.

It appears the main reason BI didn’t cut rates today is weakness of the rupiah, Alex Holmes, an economist at Capital Economics, said.

Further easing is likely over the coming months, but the pace of future rate cuts will be gradual and will be determined by the performance of the currency, the economist noted.

Official data released early this month showed that the Southeast Asia’s biggest economy contracted at the fastest pace since the Asian financial crisis due to the coronavirus containment measures.

Gross domestic product fell 5.32 percent year-on-year in the second quarter. The government forecast GDP to log -0.4 percent to 1 percent growth in the full year of 2020.

The central bank expects the current account deficit to remain below 1.5 percent of GDP this year, thereby supporting the resilience of the external sector amid the weak global economic outlook.

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