Indonesia holds key rate with risks to Rupiah rising before impending Fed increase

Indonesia's central bank kept its main interest rate unchanged for a fifth month, refraining from monetary easing that could further weaken one of Asia's worst- performing currencies.
Indonesia's central bank kept its main interest rate unchanged for a fifth month, refraining from monetary easing that could further weaken one of Asia's worst- performing currencies.PHOTO: BLOOMBERG

JAKARTA (BLOOMBERG) - Indonesia's central bank kept its main interest rate unchanged for a fifth month, refraining from monetary easing that could further weaken one of Asia's worst- performing currencies.

Governor Agus Martowardojo and his board held the reference rate at 7.5 per cent, Bank Indonesia said in Jakarta on Tuesday, an outcome predicted by all 20 economists surveyed by Bloomberg News. The authority also maintained the rate it pays lenders on overnight deposits, commonly referred to as the Fasbi, at 5.5 per cent.

The decision reflects the challenge for Indonesian policy makers grappling with both growth and currency risks, as stock market ructions and a slowing economy in China threaten exports while the impending US rate increase puts pressure on the rupiah. Inflation above 7 per cent and a current-account deficit also make cutting rates difficult in an economy growing at the slowest pace since 2009.

"External factors are basically causing uncertainty," Mr David Sumual, the Jakarta-based chief economist at PT Bank Central Asia, said before the policy decision. "It's better to just hold things for the time being, especially with inflationary pressures still there."

Concern that higher US rates anticipated later this year will spur outflows from emerging markets have seen the rupiah depreciate by about 7 per cent against the dollar this year, the worst after the Malaysian ringgit among major Asian currencies tracked by Bloomberg.