Bank Indonesia keeps rates steady

A nickel smelter near Sorowako, Indonesia. The country's exports last month accelerated at their fastest annual pace since September 2011.
A nickel smelter near Sorowako, Indonesia. The country's exports last month accelerated at their fastest annual pace since September 2011.PHOTO: REUTERS

Central bank mindful of heightened market volatility and risk of capital outflows

JAKARTA • Indonesia's central bank has kept its benchmark interest rate unchanged for a second month as more policy tightening in the United States added to the risk of capital outflows from emerging markets.

Bank Indonesia governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 per cent, in line with economists' estimates.

The bank also held steady the two other rates, which act as the floor and ceiling of the overnight interbank money market, at 4 per cent and 5.5 per cent, respectively.

The bank trimmed its benchmark rate six times, by a total of 150 basis points, during the January-October period, in a bid to get banks to lend more and the economy to grow faster. It switched its main policy rate this year to enhance the effect of monetary easing on market rates.

The rupiah slumped as much as 0.8 per cent yesterday, among the worst hit in Asia, after the US Federal Reserve signalled it might raise interest rates three more times next year, after the one confirmed on Wednesday.

Market volatility has been heightened since Mr Donald Trump's victory in the US presidential election, giving policymakers in Indonesia reason to pause after the six rate cuts this year.

"Given the uncertainties surrounding global market sentiment, it is highly unlikely that the central bank will cut its policy rate at the moment," economists at OCBC said in a note before the rate decision.

Bank Indonesia has been Asia's biggest rate cutter this year, easing policy to spur economic growth. Inflation, which accelerated to 3.6 per cent last month, from 3.3 per cent in the previous month, is still well within the bank's 3 per cent to 5 per cent target.

Earlier yesterday, data released by the nation's statistics bureau showed that Indonesian exports last month accelerated at their fastest annual pace since September 2011, far better than expected.

Exports surged 21.3 per cent from a year earlier to US$13.5 billion (S$19.4 billion).

"That is a spectacular increase. That gives us a picture of an improvement in global trade," said Mr Sasmito Hadi Wibowo, deputy chief of the statistics bureau.

Imports were at US$12.6 billion for November, up 9.8 per cent from a year ago. The country had a US$838 million trade surplus last month, smaller than the revised US$1.24 billion in October, but close to the US$820 million that analysts had forecast in a poll.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 16, 2016, with the headline 'Bank Indonesia keeps rates steady'. Print Edition | Subscribe