Indonesia’s central bank held its benchmark interest rate for a 10th straight meeting to help narrow a current-account deficit, even as economic growth and inflation slow.
Bank Indonesia Governor Agus Martowardojo and his board maintained the reference rate at 7.5 percent, the central bank said in Jakarta today, a decision predicted by all 21 economists surveyed by Bloomberg News. It also kept the deposit facility rate unchanged at 5.75 percent.
Bank Indonesia has little room to adjust its benchmark rate to tackle the current-account shortfall, as economic growth in the April-June quarter slowed to the weakest since 2009.
The incoming government of Joko Widodo, who takes office next month, wants to raise subsidized fuel prices in an effort to limit the strain on the trade balance and its budget.
“The tight policy stance will continue as the bank waits for the new administration to adjust fuel tariffs,” said Wai Ho Leong, an economist at Barclays Plc in Singapore.
“Time is on its side and it can hold this policy stance for some time.” The rupiah fell 0.1 percent to close at 11,825 per dollar in Jakarta, prices from local banks show.
The currency has slipped 1.1 percent this month, yet remains about 3 percent up this year as investors bet Widodo will take steps to revive Southeast Asia’s largest economy.
Investors Waiting
The rupiah weakness is being caused by investors waiting for clarity on the fuel policy, Bank Indonesia said today, adding it will respond preemptively to any increase in fuel costs. It said higher gas prices will push inflation toward the upper end of its target range of 3.5 percent to 5.5 percent for this year.
Widodo, known as Jokowi, may lift subsidized fuel prices in October or November to curb imports and free up state funds, his team has said.
The current-account deficit more than doubled to $9.1 billion in the second quarter compared with the previous three months, the second-biggest after the $10.1 billion in the same period last year, according to Bank Indonesia figures.
“Concerns about the current account will continue to outweigh worries about slowing growth, which means that interest rates are likely to remain on hold until at least the end of the year,” Gareth Leather, Asia economist at Capital Economics Ltd. in London, said in a note after the decision.
bloomberg.com
Bank Indonesia Governor Agus Martowardojo and his board maintained the reference rate at 7.5 percent, the central bank said in Jakarta today, a decision predicted by all 21 economists surveyed by Bloomberg News. It also kept the deposit facility rate unchanged at 5.75 percent.
Bank Indonesia has little room to adjust its benchmark rate to tackle the current-account shortfall, as economic growth in the April-June quarter slowed to the weakest since 2009.
The incoming government of Joko Widodo, who takes office next month, wants to raise subsidized fuel prices in an effort to limit the strain on the trade balance and its budget.
“The tight policy stance will continue as the bank waits for the new administration to adjust fuel tariffs,” said Wai Ho Leong, an economist at Barclays Plc in Singapore.
“Time is on its side and it can hold this policy stance for some time.” The rupiah fell 0.1 percent to close at 11,825 per dollar in Jakarta, prices from local banks show.
The currency has slipped 1.1 percent this month, yet remains about 3 percent up this year as investors bet Widodo will take steps to revive Southeast Asia’s largest economy.
Investors Waiting
The rupiah weakness is being caused by investors waiting for clarity on the fuel policy, Bank Indonesia said today, adding it will respond preemptively to any increase in fuel costs. It said higher gas prices will push inflation toward the upper end of its target range of 3.5 percent to 5.5 percent for this year.
Widodo, known as Jokowi, may lift subsidized fuel prices in October or November to curb imports and free up state funds, his team has said.
The current-account deficit more than doubled to $9.1 billion in the second quarter compared with the previous three months, the second-biggest after the $10.1 billion in the same period last year, according to Bank Indonesia figures.
“Concerns about the current account will continue to outweigh worries about slowing growth, which means that interest rates are likely to remain on hold until at least the end of the year,” Gareth Leather, Asia economist at Capital Economics Ltd. in London, said in a note after the decision.
bloomberg.com
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