Bank Indonesia keeps rates steady

Bank Indonesia (BI), as anticipated, kept its interest rates steady, aiming to safeguard the rupiah from vulnerabilities linked to US rate developments, Bloomberg reported on Wednesday.

The benchmark BI-rate remained at 6 per cent, aligning with predictions from all 38 economists surveyed by Bloomberg.

BI Governor Perry Warjiyo emphasised the stability of the rupiah, foreseeing a tendency for it to strengthen with support from BI’s stabilisation measures.

Maintaining the rate at its highest level in nearly five years aims to bolster the currency, which has weakened around 2 per cent against the dollar this year.

BI’s commitment to preserving the rupiah’s stability helps mitigate imported inflation, with market attention now turning to the US Federal Reserve‘s upcoming rate decision and economic projections.

BI exercises caution in considering rate cuts too soon due to potential capital outflows, especially if the Fed delays interest rate reductions longer than expected.

Despite foreign fund outflows and concerns over domestic politics impacting Indonesia’s debt market, the central bank intervenes with purchases to stabilise yields.

Sluggish commodity exports and inflation management remain challenges for Indonesia’s economic outlook.

Bank Indonesia maintains its growth forecast for the country at 4.7-5.5 per cent, supported by healthy credit demand.

February saw bank lending increase by over 11 per cent, aligning with the 10-12 per cent target for the year, indicating ample liquidity in the financial system and robust household and business activity, according to Governor Warjiyo.