Indonesia focuses on rupiah stability

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JAKARTA- Indonesia’s central bank held key policy rates unchanged on Wednesday, as expected, amid pressure on the rupiah currency in recent days as markets reacted to monetary policy reviews in major economies.

Bank Indonesia (BI) kept the benchmark 7-day reverse repurchase rate at 6.00 percent , matching predictions by all 31 economists polled by Reuters. Its two other main policy rates were also kept unchanged.

The decision was in line with efforts to maintain stability of the rupiah and control inflation, Governor Perry Warjiyo said.

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The rupiah has lost around 1 percent in the past week, with Monday’s drop the biggest since late January, ahead of the Bank of Japan (BOJ) policy meeting. It was unchanged after BI’s announcement.

The BOJ on Tuesday ended years of negative interest rates in a move that could affect Japanese funds invested abroad.

BI’s policy decision also came ahead of the Federal Reserve’s conclusion of US monetary policy review, expected later on Wednesday. The Fed is not expected to cut borrowing costs this week, but markets will closely watch for central bankers’ comments on when it might start to ease monetary policy.

Indonesian monetary policymakers have said they see room to cut interest rates in the second half of this year, with inflation seen remaining within target through to 2025, even as Southeast Asia’s largest economy needs a stimulus amid falling exports.

Some economists expected BI to take its cue from the Fed on the timing and magnitude of monetary easing, in order to keep a certain yield spread between assets in Indonesian rupiah and US treasury yields.

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