Bank Indonesia kept its benchmark interest rate at 3.50 percent, in line with forecasts.
Indonesia’s central bank cut its economic growth outlook for 2022 amid risks from inflation and geopolitical tensions while leaving interest rates at record lows to spur a recovery.
Bank Indonesia (BI) on Tuesday kept its standard seven-day reverse repurchase rate at 3.50 percent, as predicted by all economists in a Reuters poll. It also stabilized other policy rates for the interbank money market overnight.
BI has been adamant about keeping interest rates low for as long as possible, even if Asian central banks begin to tighten monetary policy to rein in commodity prices spike as the Ukraine-Russia war exacerbated supply chain disruptions.
Inflation in Southeast Asia’s largest economy remains within the BI’s 2% to 4% target range, although consumer prices rose to a two-year high in March at 2.64%.
Jakarta has suppressed inflation by subsidizing some fuels and intervening in the price of cooking oil.
On the other hand, the rise in commodity prices has boosted Indonesia’s exports and trade surplus, which analysts say has opened the way for the country to face global monetary tightening, including the strong increase in US interest rates.
Previous US monetary tightening moves have triggered capital outflows and rupiah volatility.
However, BI downgraded its economic growth outlook for this year to 4.5-5.3% from 4.7-5.5% previously.
“Slower growth and higher inflation mark an uneasy combination for many policymakers, including Bank Indonesia,” said Wellian Wiranto, chief economist at OCBC Bank.
“Going forward, despite such nascent growth concerns, we expect BI to start prioritizing anti-inflation,” he added, predicting BI will begin a cycle of interest gains. rates next month for a total of 100 basis points this year.
During the pandemic, BI cut interest rates by a total of 150 basis points, or 1.5%, and pumped billions of dollars into the financial system. It began easing its lax policy with an increase in the reserve requirement ratio in March.
