Indonesia’s central bank keeps rate unchanged, seeks to boost financial markets

27, Apr. 2019

JAKARTA, NNA – Indonesia’s central bank on Thursday left its key policy interest rate unchanged for a fifth month as expected, to shield Southeast Asia’s largest economy from external shocks, while “expanding” its accommodative policy stance by increasing available funds for financial markets.

Bank Indonesia released the results of its latest two-day policy board meeting that ended on Thursday. It was the first policy meeting since Indonesia’s presidential election on April 17, in which the incumbent, Joko Widodo, appears to have scored a comfortable win.

Key points:

―― The bank held the seven-day reverse repurchase rate at 6 percent, which has been unchanged since November, when it was raised by 25 basis points to draw funds from overseas amid prospects for continued U.S. credit tightening in the following months. Thursday’s decision to hold rated unchanged was aimed at helping “strengthen the external stability of the national economy,” according to the statement from the central bank.

―― To stimulate domestic demand, the bank also “expanded its accommodative policy stance.”

―― Among the new measures, the bank will increase available liquidity and support financial markets by boosting its monetary operations strategy; develop the commercial paper market as an alternative source of short-term funding for the corporate sector; and increase the supply of domestic non-deliverable forwards by relaxing the regulations, which is is seen as an effort to curb speculative selling of the rupiah in overseas markets.

Takeaway:

―― It is uncertain whether the central bank will lower the benchmark interest rate later this year to support the economy amid slower global growth, because Indonesia’s current account deficit remains large. The bank expects Indonesia’s balance of payments to record a surplus in the first quarter of 2019, “thereby bolstering external stability.” The favorable BOP outlook is based on a “narrower current account deficit coupled with a significant capital and financial account surplus,” it said.