Indonesia Central Bank Holds Rate For Second Straight Meeting

Indonesia’s central bank left its interest rate unchanged for the second successive meeting on Thursday as inflation is expected to return to the target range this year.

The Board of Governors of Bank Indonesia decided to hold the 7-day reverse repo rate at 5.75 percent. The deposit facility rate was retained at 5.00 percent and the lending facility rate at 6.50 percent.

The bank has so far hiked the benchmark rate by 225 basis points in the current tightening cycle that began in August 2022.

BI Governor Perry Warjiyo said the 5.75 percent interest rate is sufficient to drive inflation to the target band of 2-4 percent range in 2023.

In February, the consumer price inflation rose to 5.5 percent from 5.3 percent in January and stayed above the central bank’s target.

Bank Indonesia maintained its economic growth projection for this year at 4.5-5.3 percent range.

The governor reiterated that the rupiah exchange rate stabilization policy will be continued in order to control imported inflation and mitigate the impact of global financial market uncertainties on the currency exchange rate.

The central bank will be reluctant to raise interest rates to support the currency, Gareth Leather at Capital Economics said. The interest rates are set to remain unchanged for the foreseeable future, the economist added.

“With inflation moderating, we believe BI has room for an extended pause, allowing Warjiyo the space to assess the potential fallout from any adjustments that the US Federal Reserve may carry out in the coming months,” ING economist Nicholas Mapa said.

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