Indonesia Central Bank Holds Rates, Keeps Focus on Rupiah

BI RATE - JAKARTA. Indonesia's central bank left interest rates unchanged for an eighth straight month on Thursday, keeping its focus on making sure the rupiah remains stable and as inflation has stayed within target.

Bank Indonesia (BI) held the seven-day reverse repurchase rate steady at 5.75%, where it has been since January, as widely expected by 31 economists surveyed by Reuters. Its two other main rates were also kept unchanged.

The decision reaffirmed most analysts' expectations that BI will stand pat on rates until global uncertainty eases due to concerns over pressure on the currency.

BI's Governor Perry Warjiyo said the benchmark was consistent with the central bank's stance to ensure inflation stays within the target range in 2023 and 2024.

The inflation target range will be lowered to 1.5% to 3.5% in 2024, the central bank said.

The rupiah remained emerging Asia's best performer but has gradually depreciated against the U.S. dollar in recent weeks to its weakest in six months, amid rising U.S. Treasury yields. Indonesian bond yields have also risen.

BI has been trying to balance currency stability with keeping inflation in check while maintaining growth momentum in Southeast Asia's largest economy as exports fall amid softening commodity prices.

"Monetary policy remains focused on controlling the stability of the rupiah exchange rate as an anticipatory and mitigation measure against the spillover impact of global financial market uncertainty," Warjiyo told a press conference.

BI expects the U.S. Federal Reserve to increase rates in November, which Warjiyo said could maintain the dollar's strength. Meanwhile, a slowdown in major trading partner China could put pressure on Indonesian exports.

LIMITED LEEWAY

BI's room to ease policy was constrained by a strong U.S. dollar and the pressure on Indonesia's balance of payments, Fakhrul Fulvian, an economist with Trimegah Securities, said.

"Room for easing will only appear next year," he said.

Consultancy Capital Economics also pushed back its expectation for BI's first rate cut from October to December.

Its analyst Gareth Leather said the Fed's hawkish comments appeared to have uneased BI, noting that the Indonesian central bank must keep the rupiah steady due to the country's large stock of foreign currency debt.

BI kept its GDP growth target for 2023 at a range of 4.5% to 5.3%, compared with 2022's growth of 5.3%.

Inflation, which peaked near 6% last year on high energy and food prices, returned to BI's 2% to 4% target earlier than expected this year. In August, inflation remained close to the midpoint of the range at 3.27%.

BI has also begun offering its own notes this month in a tweak to its monetary operations intended to deepen domestic financial markets and attract foreign capital inflows.

Warjiyo said market has responded positively to the notes, with multiple over subscriptions in its first two auctions, during which BI sold a total of 37.7 trillion rupiah ($2.45 billion). Some 5% of the notes have been traded in the secondary market, mostly bought by non-residents, BI said.

The governor said the size of future auctions would depend on market appetite. ($1 = 15,370.0000 rupiah)