Indonesia’s central bank left its benchmark rate unchanged and pledged to maintain a “pro-growth” policy into next year as one of the most severe Covid outbreaks in the world puts the economy’s recovery at risk.
Bank Indonesia kept the seven-day reverse repurchase rate at 3.5% on Thursday, as all 29 analysts in a Bloomberg survey predicted, and cut its economic growth forecast for the year.
The central bank has held its policy rate steady since February and recently signalled that it may not make any rate moves until at least next year.
“This decision is in line with the need to maintain exchange-rate stability and financial-system stability due to uncertainty in global financial markets, amid low inflation forecasts and efforts to support economic growth,” governor Perry Warjiyo said at a briefing in Jakarta.
The decision comes as recovery prospects for Southeast Asia’s biggest economy are fading and the latest Covid-19 outbreak cripples the country’s health system.
The bank said Thursday it now sees the economy growing 3.5%-4.3% this year, down from earlier expectations of 4.1%-5.1% growth, after the government imposed tighter virus curbs that put the brakes on demand and productivity improvements.
Rupiah pressure
Concerns over the outbreak also have pressured the currency, putting the monetary authority in a more challenging position.
The currency is down 3% so far this year and the sovereign bond market has seen an exit of foreign funds recently as credit-rating companies such as Moody’s Investors Service and S&P Global Ratings warn of downside risks to the economy.
The rupiah maintained Thursday’s gains after the decision, up 0.4% at 14,483 to the dollar as of 3.49pm Jakarta time. The country’s benchmark stock index extended its gains, up 1.8% on the day, the most in a month.
Warjiyo has pledged to keep rates low and ensure ample liquidity to support business sectors. The central bank may need to continuously adjust macroprudential policies to enhance policy transmission, ensuring that stimulus gets to where it’s most needed and lifts the real economy.
The central bank kept its 2021 inflation outlook at 2%-4%. This year’s current-account gap seen at 0.6%-1.4% of GDP.