Rate nears peak, BI governor says

BI RATE - JAKARTA. Bank Indonesia (BI) Governor Perry Warjiyo said on Wednesday that the central bank’s policy rate was nearing its peak after a series of aggressive hikes last year to make the rupiah more stable.

The central bank’s board of governors is expected to announce their latest monetary stance on Thursday at 2 p.m. with analysts believing that BI will put the rate hike on hold because of favorable conditions in the emerging markets following the United States Federal Reserve’s dovish tone on its rate hike path this year.

“We will maintain our ‘preemptive, ahead of the curve’ monetary policy stance even though our policy rate, the seven-day reverse repo rate, is almost nearing its peak,” said Perry, adding that BI’s monetary policy would be guided to safeguard the stability of Indonesia’s financial market.

BI’s policy rate has climbed steadily since May to the current 6 percent level. The central bank has raised it by 175 basis points last year in a hawkish move to stabilize the rupiah while maintaining the attractiveness of Indonesia’s financial assets.

The current account deficit, which was identified as one of the causes of the rupiah’s volatility last year, is projected to be US$ 8.8 billion in the fourth quarter. Because foreign capital inflow was recorded at $12.5 billion over the same period, Perry projected that the balance of payment would be surplus of around $4 billion in the fourth quarter of 2018.

Despite its pro-stability stance, Perry added that the central bank would also direct other policy options to boost growth through macroprudential policy relaxation that was targeted for the export and tourism sectors as well as developing the interest rate swap and repo instruments to deepen the financial market, among others.