Indonesia central bank holds key rate at 7.50% as expected

The central bank refrained from easing even after data released the same day showed a deepening in the export slump that's hurting Southeast Asia's biggest economy.
The central bank refrained from easing even after data released the same day showed a deepening in the export slump that's hurting Southeast Asia's biggest economy.PHOTO: BLOOMBERG

JAKARTA (REUTERS, BLOOMBERG) - Indonesia's central bank held its benchmark interest rate steady on Tuesday, saying its focus was to maintain stability in the rupiah.

Bank Indonesia has held the policy rate at 7.50 per cent since February when it last cut rates by 25 basis points.

Analysts in a Reuters poll had expected the central bank to keep all interest rates unchanged.

Annual inflation in July was at 7.26 per cent, virtually identical with June, the highest this year.

The rupiah is the second-worst performing currency in emerging Asia after Malaysia's ringgit, trading at a level not seen since mid-1998.

Bank Governor Agus Martowardojo and his board also maintained the rate it pays lenders on overnight deposits, commonly referred to as the Fasbi, at 5.5 per cent, as forecast.

The central bank refrained from easing even after data released the same day showed a deepening in the export slump that's hurting Southeast Asia's biggest economy.

The country still faces external risks and needs a policy mix to guard stability, Bank Indonesia said earlier this week, as the rupiah added to declines that have made it Asia's second-worst performing major currency this year.

"There's a trade-off dilemma between aiding the economic recovery" and managing currency stability, Santitarn Sathirathai, a Singapore-based economist at Credit Suisse Group AG, said before the decision. "Inflation is still quite elevated, and there's also a Fed hike uncertainty on the horizon."

China's decision this month to allow the biggest depreciation of the yuan in two decades should be viewed as part of monetary easing, which Indonesia cannot afford, Nanang Hendarsah, a director at Bank Indonesia, said last week. The Southeast Asian nation's policy makers are also bracing for an impending U.S. rate increase.