Indonesia Central Bank Keeps Rate Unchanged

bankindonesia nov15 25may23 lt

Indonesia's central bank left its benchmark rate unchanged for the fourth consecutive meeting on Thursday, as inflation moved closer to the target.

The Board of Governors of Bank Indonesia, led by Governor Perry Warjiyo, decided to hold the seven-day reverse repo rate at 5.75 percent.

The deposit facility rate was retained at 5.00 percent and the lending facility rate at 6.50 percent.

The central bank has hiked the benchmark rate by 225 basis points in the current tightening cycle that began in August 2022.

Warjiyo said the policy is focused on strengthening stabilization of the currency to control imported inflation and mitigate the impact of global financial market uncertainties.

The central bank forecast inflation to return to the target range of 2-4 percent in the third quarter of 2023. At the same time, core inflation is expected to remain under control in the target range for the remainder of 2023.

The bank maintained its economic growth projection for 2023 at 4.5-5.3 percent.

There is a good chance that the central bank could cut rates before the end of the year with inflation falling and growth easing, Capital Economics' economist Gareth Leather said.

The economist said the economy will struggle due to lower commodity prices, high interest rates and weaker global demand. The economist forecasts first rate cut to come in October.

With inflation heading back towards the target, future BI decisions on policy will likely hinge on the currency's stability in the coming months, ING economist Nicholas Mapa said.

Mapa cautioned that ongoing talks over the US debt ceiling and uncertainty over the Fed's policy direction would continue to add pressure on the Indonesian rupiah for a little longer.

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