Indonesia holds rate even as rupiah gain offers window to ease

Indonesia's central bank kept its main interest rate unchanged for an eighth month.
Indonesia's central bank kept its main interest rate unchanged for an eighth month.PHOTO: REUTERS

JAKARTA (BLOOMBERG) - Indonesia's central bank kept its main interest rate unchanged for an eighth month, refraining from easing even as recent gains in the rupiah and declining odds of a Federal Reserve rate increase this year create room to act.

Governor Agus Martowardojo and his board held the reference rate at 7.5 per cent, Bank Indonesia said in Jakarta Thursday, as predicted by all 25 economists surveyed by Bloomberg. The authority also maintained the rate it pays lenders on overnight deposits, commonly referred to as the Fasbi, at 5.5 per cent, as forecast.

The rupiah's rebound this month has reduced pressure on policy makers to shore up the currency, which would be vulnerable to capital outflows should U.S. rates rise. Bank Indonesia, grappling with the slowest economic growth since 2009, is opting to wait instead of joining Singapore in easing monetary policy this week.

"While it is too soon to do anything, the likelihood that the Federal Reserve is going to delay liftoff could provide an opportunity to deliver a rate cut to support growth," Euben Paracuelles, an economist at Nomura Holdings Inc. in Singapore, said before the decision. "They could start setting the stage for a cut as early as December."