Indonesia's central bank keeps key rates unchanged

19 Sep '15

2 min read

Indonesia's central bank has kept its benchmark policy interest rate unchanged saying the level was consistent with efforts to manage inflation this year and in 2016.

The Bank Indonesia Board of Governors decided to hold the bank rate at 7.50 per cent, while maintaining the Deposit Facility Rate at 5.50 per cent and the Lending Facility Rate at 8 per cent, it said in a statement. It was widely expected to keep its key rate on hold as it tries to strike a balance between currency stability and economic growth.

The rupiah, trading at 17-year lows, is emerging Asia's second-worst performing currency. Economic growth was 4.67 per cent in the second quarter, the slowest since 2009.

The decision underscores the constraints Indonesia's policy makers face in managing a faltering economy amid the risk of capital outflows and market volatility and came ahead of the US Federal Reserve deciding to keep almost seven years of near-zero interest rates unchanged.

While government spending has been slow to take off, the central bank's ability to provide monetary stimulus is limited by the rupiah, which has fallen more than 14 per cent against the dollar this year.

The Bank said despite early indications of US economic momentum, global economic growth was weaker than previously projected.

On the home front, it said the the domestic economy was projected to accelerate in Q3 of 2015. Household consumption has shown signs of improvement, reflecting a surge in motorcycle sales. Investment is also expected to increase congruous with greater government investment as more infrastructure projects begin construction, such as toll roads, power stations and dams, the statement said.

Indonesia's trade balance recorded a surplus in August 2015. Although lower from the previous period, the trade surplus in August stood at $0.43 billion. The decline stemmed from a narrower non-oil and gas trade surplus as imports surged of machinery and mechanical equipment, electrical equipment as well as iron and steel.

The Bank said inflation fell in August 2015 on post-Eid-ul-Fitr price corrections. CPI inflation was recorded at 0.39 er cent (mtm) or 7.18 per cent (yoy) in August 2015 as a result of administered price deflation and controlled core inflation. (SH)

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