JAKARTA. BI (the Central Bank) left its 7-day reverse repo rate unchanged. The decision was taken in a meeting of the Board of Governors (RDG) which took place 16 to 17 November 2016 in responding to the rising uncertainty in the global financial markets.
BI Governor Agus Martowardojo says, BI 7-Day Reverse Repo Rate was maintained at 4.75% , while the deposit facility and lending facility remain at 4% and 5.5%, respectively.
"This policy is in line with the precautionary of BI in response to the rising uncertainty in the global financial markets after the US Presidential election," he said, Thursday (17/11). Uncertainty has made foreign investors to remove portfolios in Indonesia.
Despite of the increase in uncertainty in global financial markets, according to Agus, the domestic macro-economic stability is maintained. It was reflected on the inflation rate in October 2016 and annual inflation rate that stood at 0.14% and 3.31% on year on year (yoy) basis, respectively.
By the end of this year, the central bank expects inflation to be in the range of 3% -3.2% or at the lower limit of the inflation target of 4% plus minus 1%.
On the other hand, the current account deficit or current account deficit (CAD) also improved from 2.2% of gross domestic product (GDP) in the second quarter of 2016 to 1.83% of GDP in the third quarter of 2016.
CAD improvement was driven by higher trade surplus. The improvement helped Indonesia's balance of payments (NPI) in the third quarter so that increasing the surplus by US$ 5.7 billion compared with the previous quarter.
Meanwhile, rupiah exchange rate in the third quarter of 2016 rose by 1.39% to the level of Rp13,130 per US dollar. By October 2016, rupiah apreciated by 0.71% and closed at Rp13,048 per US dollar.
"The strengthening of rupiah was supported by the positive sentiment of the domestic economy along with stable macroeconomic and the implementation of the Law on Tax Amnesty," he added.
However, Agus admitted that since early November to 16 November, the rupiah depreciated by 2.35% to Rp 13,378 per US dollar. The depreciation was caused by rising global economic uncertainty after the US Presidential election.
"Pressure on the rupiah depreciation is relatively limited compared to other emerging market currencies. On year to date basis, the rupiah still apreciated by 2.97%.
Looking ahead, BI will continue to stabilise the rupiah exchange rate in accordance with the fundamentals to maintain the market mechanism,” Agus said.
Maintaining liquidity
Senior Deputy Governor of BI Mirza Adityaswara said that BI will monitor the condition in the US until at least January 2017. The monetary authority looks forward to having the Trump’s announcement on the new cabinet, which will reflect the US’ policies for the future.
BI is also waiting for an official statement of The Federal Reserve in the meeting of the Federal Open Market Committee (FOMC) in mid-December.
Mirza promised that BI will maintain the exchange rate to match its fundamental and maintain the availability of liquidity, especially at the end of the year. Because, apart from capital outflows, which are affected by The Fed’s plan to raise its interest rate, the issuance of government securities to finance the government at the beginning of next year will also be influential.
Economist at Kenta Institite Eric Sugandi said that containment of BI’s benchmark interest rate may provide a neutral, even positive impact to the rupiah, indices, and government bonds.
Eric hoped that in the future BI will continue to cultivate the power of foreign exchange reserves. Therefore, BI may carry out measurable in tervention to maintain the rupiah volatility.
"The government also needs to control the State Budget deficit at a safe level so that may improve the sentiment of government securities holders,” he said.
(Muhammad Farid/Translator)
