Indonesian bank keeps rates, says it won’t change monetary outlook because of Fed


  • The benchmark is maintained at a record high of 3.50%
  • BI will keep rates low until it sees signs of rising inflation
  • signals global uncertainty over Omicron and Fed withdrawal

JAKARTA, Dec. 16 (Reuters) – Indonesia’s central bank left interest rates at record highs on Thursday to support the economy’s recovery after COVID-19 and said it saw no need to change its political outlook after the Federal Reserve announced plans for a faster declining bond.

Bank Indonesia (BI) left the 7-day repo rate (IDCBRR = ECI) at 3.50%, where it has been since February and as expected by all economists polled by Reuters. The central banks of the Philippines and Taiwan also kept their respective interest rates unchanged on Thursday. Read more

Governor Perry Warjiyo said the BI move was in line with the need to support the recovery and keep the rupee stable, while pointing to the uncertainty surrounding the spread of the Omicron variant and the central bank’s tightening plans. American.

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The Fed announced overnight that it would end its pandemic bond purchases in March and pave the way for interest rate hikes of three-quarters of a percentage point by the end of 2022. Read more

Warjiyo said that while the Fed’s move will affect capital inflows into emerging markets like Indonesia, BI’s policy normalization plans need not follow those of the Fed.

He reiterated that the BI will start reducing “excess liquidity” next year, but will keep interest rates low until inflation shows signs of rising.

“Don’t draw the conclusion that if the federal funds rate goes up, so will the BI rate. That is not true,” he told an online news conference.

“Our decision on the level of the BI rate will be determined by inflation and (national) economic growth in 2022, 2023 and 2024.”

Gov. Perry Warjiyo said the economy is likely to recover in the fourth quarter, but BI has kept its GDP growth outlook for 2021 between 3.2% and 4.0%, after downgrading it last month to due to the impact of a deadly wave of COVID-19 in the third trimester.

BI forecast growth of over 4.5% in the October-December quarter after slower-than-expected growth of 3.5% in the third quarter due to coronavirus restrictions. Read more

David Sumual, chief economist at Bank Central Asia, said Indonesia’s large trade surplus would provide enough US dollars to anchor the rupee’s exchange rate, allowing BI to keep rates stable for a while. time and only increase them in the second half of 2022.

However, Bank Mandiri economist Faisal Rachman has forecast a rate hike in the first half of next year due to the Fed’s “hawkish strategy”.

“We see that the need for BI to maintain stability going forward will become increasingly vital,” Faisal said, adding that he expects rate hikes of 75bp next year.

Warjiyo said BI will monitor the risk of another wave of infection as Indonesia reported the first case of the Omicron variant on Thursday. Read more

Inflation was at a 17-month high of 1.75% in November, although it remains below the BI’s 2-4% target range. The BI reiterated that inflation will return to its target range next year.

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Reporting by Gayatri Suroyo and Fransiska Nangoy, Additional reporting by Bernadette Christina; Editing by Ed Davies and Ana Nicolaci da Costa

Our standards: Thomson Reuters Trust Principles.


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