(Bloomberg) -- Indonesia’s central bank left its benchmark interest rate unchanged and extended policies to boost loan growth and consumption, seeking to bolster a recovery driven by commodity exports and border reopening.
Bank Indonesia kept the seven-day reverse repurchase rate at a record-low 3.5% on Tuesday, as predicted by all 30 analysts in a Bloomberg survey, staying on pause for an eighth straight meeting.
“The decision is consistent with the need to maintain exchange rates and financial system stability amid projected low inflation and efforts to revive economic growth,” Governor Perry Warjiyo said in a briefing in Jakarta. “Economic growth in 2022 will be better than this year.”
Warjiyo announced that the central was easing down-payment rules for home and auto loans until the end of next year and extending stimulus for credit-card repayments, all steps designed to augment the effects of its accommodative monetary policy.
The rupiah strengthened 0.3% on Tuesday to 14,068 to the U.S. dollar, though it gave up some ground after the decision. Indonesia’s benchmark stock index was down 0.3% as of 2:37 p.m. Jakarta time.
What Bloomberg Economics Says...
“Steady rates may be the optimal choice as the central bank will have to continue to navigate between competing concerns -- sub-par domestic demand, rupiah vulnerability and building price pressures. By the second half of 2022, the pressure to lift the policy rate is likely to be acute, in our view, especially if the Federal Reserve unexpectedly brings forward the start of its rate hikes.”
Tamara Mast Henderson, Asean economist
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Southeast Asia’s biggest economy is seeing early signs of recovery from the ravages of coronavirus delta-variant, with rebounds seen in manufacturing and consumer confidence. Indonesia has also reopened its borders to revive tourism, allowing vaccinated foreign visitors to some destinations including Bali.
Bank Indonesia “signaled its intention to not be swept along the recent hawkish tilt of more and more central bank peers, and to continue its holding stance for a while more,” said Wellian Wiranto, economist at Oversea-Chinese Banking Corp in Singapore. “Looking into next year, we see BI continuing to have the space to keep its policy rate unchanged in the first half, but the risk of a stronger drumbeat for a Fed funds rate hike in the second half might get harder for it to dismiss.”
Soaring commodity prices are helping Indonesia, a top exporter of coal and palm oil. With a robust trade surplus and high foreign reserves, the nation’s current-account balance may be in surplus this year. That will support the rupiah, which has become Asia’s best performing currency in the second half of the year, gaining almost 3%.
Still, the rupiah could face headwinds as the U.S. Federal Reserve gets closer to tapering its pandemic-era asset purchases. Foreign funds sold $1.3 billion of Indonesian sovereign bonds last month, the most since March 2020, though the central bank said earlier this month the selling pressure was temporary.
Other points from the briefing:
- The central bank maintained its forecast for economy to grow 3.5%-4.3% this year
- This year’s average inflation expected to be below midpoint of 2%-4% range
- Core inflation is still low, in line with weak domestic demand
- Indicators such as manufacturing PMI, retail sales, consumer confidence and payment transactions show economy gaining steam
- Current-account surplus expected for the third quarter
- The current-account is expected to show a deficit of 0%-0.8% of GDP for the full year, and show a small deficit in 2022
- Demand for business and consumer loans is improving, with loan growth expected to reach 4%-6% this year
(Updates with more details throughout.)
©2021 Bloomberg L.P.
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