Bank Indonesia signals end to easing of rates

Bank Indonesia was Asia's biggest rate cutter last year in its bid to spur growth in South-east Asia's biggest economy.
Bank Indonesia was Asia's biggest rate cutter last year in its bid to spur growth in South-east Asia's biggest economy. PHOTO: BLOOMBERG

JAKARTA • After six reductions to its interest rates last year to spur growth, Bank Indonesia is hinting that it has done enough.

The senior deputy governor at the central bank gave his clearest signal yet that policymakers are done cutting rates, saying the benchmark rate is "low enough".

Boosting growth is "not about interest rates any more", Mr Mirza Adityaswara, who is in charge of monetary policy, foreign exchange reserves and currency management at Bank Indonesia (BI), said in an interview on Thursday.

"We monitor the external factors," he said. "We think we've already cut enough."

Bank Indonesia was Asia's biggest rate cutter last year in its bid to spur growth in South-east Asia's biggest economy. Since then, a weaker currency - fuelled by expectations of higher US rates - and a pick-up in price pressures have put policymakers on hold.

The central bank last month kept its benchmark rate unchanged at 4.75 per cent, which Mr Adityaswara said was "low enough".

Indonesia's economy grew 5 per cent last year and is forecast by the World Bank to pick up pace this year to 5.3 per cent. After dropping below 3 per cent last year, inflation is starting to accelerate, reaching 3.8 per cent last month.

"It's the strongest commentary" the bank has given lately on the interest-rate outlook, said Australia & New Zealand Banking Group economist Ng Weiwen. "Even though inflation control will be more challenging in 2017, we think a neutral policy stance is still warranted and that's what BI communicated."

The rupiah fell for a third day to 13,395 against the US dollar, the weakest level since Jan 20.

Mr Adityaswara said the bank was also guarding against any market fallout if the US raises interest rates again. The Federal Reserve is set to tighten policy next week, hours before Bank Indonesia makes its own rate decision next Thursday.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on March 11, 2017, with the headline 'Bank Indonesia signals end to easing of rates'. Print Edition | Subscribe