JAKARTA: Indonesia’s central bank left its benchmark interest rate unchanged for a seventh month but left the door open for future easing amid a prolonged US-China trade war and the Federal Reserve’s willingness to cut.
The seven-day reverse repurchase rate was left at 6% yesterday, as predicted by 28 out of 35 economists surveyed by Bloomberg. The rest forecast a cut of 25 basis points.
While Bank Indonesia governor Perry Warjiyo has said there’s room for easing to spur economic growth, he remains wary of a potential reversal of capital flows as the trade war threatens to weigh on the nation’s high current-account deficit.
Indonesia raised interest rates by 175 basis points last year as it battled an emerging-market rout, triggered by rising US interest rates and a stronger dollar. The Fed on Wednesday signalled it’s ready to lower rates, boosting sentiment for developing markets.
Warjiyo said early this week that low inflation and the need to boost economic growth meant there’s “room to lower interest rates.” The central bank already sees growth coming in below the midpoint of its 5%-5.4% target for this year.
The current account deficit remains a key vulnerability for Indonesia, making it reliant on foreign inflows to finance the shortfall. Bank Indonesia has pointed to lingering uncertainties in financial markets, including from trade tensions, that may weigh on the deficit.
Central banks around the globe have been shifting to looser monetary policy stances as the US-China trade war undermines global growth prospects. India, Australia, New Zealand, the Philippines and Malaysia have all cut rates in recent weeks.
Inflation quickened to a one-year low of 3.3% in May, remaining well within the central bank’s target band for 2019 of 2.5% to 4.5%.
The rupiah has rebounded about 1.5% against the US dollar in the past month, while the yield on benchmark 10-year sovereign bonds tumbled more than 50 basis points. — Bloomberg