Indonesia central bank holds interest rate as inflation concerns loom

A worker cleans the entrance to the headquarters of Bank Indonesia, the nation's central bank, in Jakarta, Indonesia.
A worker cleans the entrance to the headquarters of Bank Indonesia, the nation's central bank, in Jakarta, Indonesia.PHOTO: BLOOMBERG

JAKARTA (REUTERS, BLOOMBERG) - The current policy stance of Indonesia's central bank is tilted toward neutral, a senior official said after Bank Indonesia (BI) decided to keep its key policy rates unchanged on Thursday.

Governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 per cent. The bank lowered rates six times last year, with the last move in October.

"We remain neutral, with a position of bias towards neutral," Dody Budy Waluyo, BI's executive director of economic and monetary policy, told a news conference following the rate decision.

BI said Indonesia's economic growth in the first quarter was likely slower than it initially expected, pointing to declining retail sales.

While consumer prices rose at a slower pace than economists predicted in March, inflation is set to pick up this year.

First quarter growth was below expectations, due to slowing private consumption, but was expected to pick up in the second quarter, driven by exports and domestic consumption, the central bank said. Monetary policy transmission had been slower pace as banks become more conservative, it said.

Consumer prices rose 3.6 per cent in March from a year earlier. Inflation will probably average 4.3 per cent this year, according to the median estimate in a Bloomberg survey of economists.

A rate cut is unlikely this year despite the weak outlook for the economy as inflation remains a concern for the central bank, said Gareth Leather, a senior economist at Capital Economics in London.