Indonesia’s central bank kept its key interest rate unchanged for a third straight month to support the rupiah that fell past the key support level of 16,000 to the dollar.
Bank Indonesia kept the benchmark BI-Rate steady at 6% on Wednesday, in line with the prediction of 21 of 34 economists surveyed by Bloomberg. The rest expected a cut of 25 basis points.
“The focus of monetary policy is directed at strengthening the stability of the rupiah exchange rate from the impact of heightened global economic uncertainty due to US policy direction and escalation of geopolitical tensions in various regions,” Governor Perry Warjiyo told reporters.
The weak local currency and capital outflow pressures post a challenge to the monetary authority that’s seeking to pursue an easing cycle to fire up growth. Warjiyo had said before that the relentless dollar strength and higher US Treasury yields on the back of President-elect Donald Trump’s policy plans had narrowed the room for further easing.
“In latest board meeting over the past two days, we were assessing Trump’s policy steps in the US because it affects the stability of global financial markets and impacts how we have to stabilize the rupiah and formulate monetary policy,” Warjiyo said.
The local currency has lost about 6% against the greenback this quarter. Bank Indonesia said it made a “quite bold” intervention in the markets last week to stem the rupiah’s decline.
The rupiah and Indonesian stocks held on to early losses after the rate decision announcement.
“The rupiah’s renewed wobble in recent weeks appears to have stayed the Board’s hand, in spite of the growing pressure to ease exerted by the weaker-than-expected Q3 GDP result,” said Miguel Chanco, senior economist with Pantheon Macroeconomics.
Warjiyo said last month that policy rates will be “maintained temporarily” to prioritize currency stability. The central bank is also utilizing its rupiah securities to attract foreign inflows and stabilize the currency while deploying incentives to get financial institutions to spur lending and boost economic activities.
“Going forward, Bank Indonesia sees the rupiah stabilizing and strengthening in line with attractive yields, low CPI and promising economic growth outlook,” Warjiyo told reporters on Wednesday.
This week the government unveiled an economic policy package that includes several fiscal stimulus measures to cushion the impact of next year’s higher value-added tax rates on domestic demand.
The nation’s inflation rate slowed further last month to the lower end of the central bank’s target range of 1.5%-3.5%. Warjiyo said food inflation remained low due to increasing food supplies as well as policies to maintain prices.
Two days before the rate decision, Indonesia’s anti-graft agency searched the headquarters of the central bank, including the office of the governor. It was part of an ongoing probe into the monetary authority’s use of corporate social responsibility funds and the corruption watchdog said it plans to summon Bank Indonesia officials for questioning.
A currency trader in Singapore said the raid may have a negative impact on the rupiah, although it isn’t clear how big the impact will be. It is “never good” to have your central bank raided, said Mingze Wu with StoneX Financial.
