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Indonesia central bank holds key rate at record low amid rupiah, virus worries

Kamis, 17 Juni 2021 / 15:24 WIB
Indonesia central bank holds key rate at record low amid rupiah, virus worries
ILUSTRASI. Workers leave Bank Indonesia headquarters in Jakarta, Indonesia, September 2, 2020. REUTERS/Ajeng Dinar Ulfiana

Sumber: Reuters | Editor: Tendi Mahadi

KONTAN.CO.ID - JAKARTA. Indonesia's central bank held its benchmark rate at a record low on Thursday as it sought to keep monetary policy accommodative amid a rise in COVID-19 cases and maintain stability in the rupiah currency.

Bank Indonesia (BI) kept the benchmark 7-day reverse repurchase rate at 3.50% for a fourth straight meeting, as expected by all 26 economists in a Reuters poll. Its two other main rates were also left unchanged.

Governor Perry Warjiyo repeated a pledge to keep interest rates low and liquidity abundant until inflation rises, which he expects to happen in early 2022 at the earliest. Inflation rose to 1.68% in May but remained below BI's target of 2% to 4%.

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But the Federal Reserve began closing the door on its pandemic-driven monetary policy at its central bank meeting, and the prospect of U.S. tapering may complicate matters for BI as it could trigger capital outflows, analysts said.

"It's too soon to talk about (U.S.) tapering. We see the market is still relatively stable," Warjiyo said in a streamed press conference.

He said the Fed is more likely to begin reducing its bond buying programme in the first quarter of next year and rate hikes will likely happen the year after.

The Fed's announcement in 2013 that it would taper its quantitative easing triggered capital outflows in emerging markets, with Indonesia among the worst hit as its currency fell more than 20%.

The rupiah fell as much as 0.94% against the dollar in reaction to the Fed statement, but had since steadied at around 0.8% down following BI's decision.

BI has cut interest rates by a total of 150 basis points and pumped more than $57 billion worth of liquidity into the financial system since 2020.

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Meanwhile, the country has been grappling with a rise in COVID-19 cases in several provinces, including its capital, raising the prospect that authorities could reintroduce mobility restrictions that could affect the economic recovery.

BI "appeared to indicate that it was in little hurry to change interest rates soon," Capital Economics said in a note.

Indonesia's economy contracted 0.74% year-on-year in January-March after shrinking by 2% in 2020 due to the fallout of the pandemic.

BI maintained its forecast that GDP will grow between 4.1% and 5.1% this year.

The governor said BI will monitor the impact of rising cases on economic activity. 

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