Indonesia's central bank holds key rate at 4.75%

 Bank Indonesia kept its interest rate unchanged at 4.75 per cent.
Bank Indonesia kept its interest rate unchanged at 4.75 per cent. PHOTO: REUTERS

JAKARTA (BLOOMBERG, REUTERS) - Indonesia's central bank kept its benchmark interest rate unchanged to help shore up the economy in the face of tighter United States monetary policy and the threat of capital outflows.

Bank Indonesia governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 per cent yesterday Thursday. Six rate cuts in 2016 and rising inflation pressures are giving policy makers in Indonesia reason to pause, with Mr Martowardojo earlier this month saying they are turning more cautious because of growing global risks.

Fed Chair Janet Yellen said this week every central bank meeting is "live" for a possible rate hike.

"Our view is that BI will keep policy rates unchanged this year," Euben Paracuelles, an economist at Nomura Holdings in Singapore, said before the decision. "They've highlighted their preference for maintaining stability rather than pursuing growth, which is quite prudent. It seems Fed rate hikes are coming and that could mean capital outflows for emerging markets including Indonesia."

Indonesia's economy has picked up pace, expanding 5 per cent last year from 4.9 per cent in 2015. The World Bank forecast growth of 5.5 per cent this year and next. Inflation is quickening although expected to remain within the bank's target of 3 per cent to 5 per cent. 

Despite BI's six cuts last year to its policy rate, credit growth remains weak due to increasing volumes of bad debts, bankers say. Non-performing loans (NPL) in December accounted for 2.9 per cent of outstanding loans, according to BI.

Loans by commercial banks expanded 7.9 per cent in December compared with a year earlier, slowing from November's pace of 8.5 per cent, the central bank said.

Indonesia also released trade data yesterday. Exports rose at the fastest pace since September 2011, as shipments of commodities rose by value, data from the statistics bureau showed.

Exports rose 27.71 per cent in January from a year earlier to US$13.38 billion (S$19 billion), as shipments of palm oil and coal increased. Imports were US$11.99 billion in January, up 14.54 per cent from a year ago.

The country recorded a US$1.40 billion surplus for the month.