Jakarta central bank keeps rates unchanged

A vendor waits for customers at a market in Bogor. September trade data issued yesterday showed imports plunged again, by 26 per cent, showing Indonesians' ability to consume was still limited by the weak economy and a fragile currency.
A vendor waits for customers at a market in Bogor. September trade data issued yesterday showed imports plunged again, by 26 per cent, showing Indonesians' ability to consume was still limited by the weak economy and a fragile currency.PHOTO: EUROPEAN PRESSPHOTO AGENCY

It sees possibility of easing policy amid gains in rupiah and lower odds of a Fed rate hike

JAKARTA • Indonesia's central bank kept its main interest rate unchanged for an eighth month, while signalling it sees room to ease policy amid recent gains in the rupiah and declining odds of a

US Federal Reserve rate increase this year.

Governor Agus Martowardojo and his board held the reference rate at 7.5 per cent, Bank Indonesia said yesterday.

The authority also maintained the rate it pays lenders on overnight deposits, commonly referred to as the Fasbi, at 5.5 per cent.

"The pressure to macrostability is receding, so there is room in the future to ease monetary policy," said central bank spokesman Tirta Segara, after announcing no change to the benchmark interest rate at a policy meeting.

The rupiah's rebound this month has reduced pressure on policymakers to shore up the currency, which would be vulnerable to capital outflows should US rates rise.

FORECAST UNCHANGED

We expect interest rates to be cut before the end of the year, but much will depend on what happens to the currency. For now, we are retaining our forecast that there will be some easing before the year end.

MR GARETH LEATHER, analyst at Capital Economics

Bank Indonesia, grappling with the slowest economic growth since 2009, is opting to wait instead of joining Singapore in easing monetary policy this week.

Inflation at 6.8 per cent year on year and a weak rupiah had held the central bank back from ideally cutting interest rates this year to promote growth, Capital Economics analyst Gareth Leather said in a note.

"We expect interest rates to be cut before the end of the year, but much will depend on what happens to the currency," he said.

"For now, we are retaining our forecast that there will be some easing before the end of the year."

The volatile rupiah strengthened more than 9 per cent last week, and yesterday gained nearly 2 per cent. But for the year, it has weakened about 7.5 per cent.

September trade data issued earlier yesterday illustrated one of Indonesia's economic problems. Imports plunged again, by 26 per cent, showing Indonesians' ability to consume was still limited by the weak economy and a fragile currency.

Exports, which long have been falling, were down 18 per cent from a year earlier. Indonesian manufacturers cut payroll numbers at the second-fastest pace in at least four years last month as industry activity contracted for a 12th straight month, the latest Nikkei Markit purchasing managers' index survey showed.

Yesterday, President Joko Widodo's administration announced changes in labour rules, the latest in a series of measures aimed at reviving growth in Southeast Asia's largest economy.

From next month, minimum wages will be increased every year by the GDP growth rate plus the inflation rate, Chief Economics Minister Darmin Nasution said. Previously, minimum wages were determined through yearly negotiations between unions, employers and local governments.

"This is to create as many jobs as possible and also to increase the welfare of the workers, but we also have to think about people that are not employed yet," Mr Nasution said.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on October 16, 2015, with the headline 'Jakarta central bank keeps rates unchanged'. Print Edition | Subscribe