Indonesia holds key rate to safeguard against capital outflows

Governor Agus Martowardojo (above) and his board held the seven-day reverse repurchase rate at 4.75 per cent on Thursday.
Governor Agus Martowardojo (above) and his board held the seven-day reverse repurchase rate at 4.75 per cent on Thursday. PHOTO: REUTERS

JAKARTA (BLOOMBERG) - Indonesia's central bank kept its benchmark interest rate unchanged at its first meeting in 2017 with policy makers remaining on guard against the risk of capital outflows.

Governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 per cent on Thursday, as forecast by all but one of 21 economists surveyed by Bloomberg.

The prospect of further policy tightening in the US is putting pressure on emerging-market currencies, including Indonesia's rupiah. Six rate cuts in 2016 and subdued inflation is giving policy makers in Indonesia room to pause as the World Bank forecasts faster growth this year and next.

"The country's high exposure to volatile portfolio investment and a more hawkish Fed necessitate that the central bank be vigilant and safeguard capital flows through a sizeable interest-rate spread with US Treasuries," Trinh Nguyen, a senior economist at Natixis in Hong Kong, said before the decision.

As commodity prices rebound and the credit cycle gradually improves, Indonesia could be the "comeback kid of 2017" as growth accelerates, she said.

Bank Indonesia aims to keep inflation at 3 per cent to 5 per cent this year. Consumer-price growth has been under 5 per cent for more than a year.