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Bank Indonesia Stands Pat on Rates, Sees Slower Q3 Growth

2018.10.25 10:56:47 | 2018.10.25 10:57:17
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Bank Indonesia kept its benchmark interest rate unchanged on Tuesday, taking a pause after 150 basis points of rate hikes since May, and warned that third-quarter economic growth may not be as strong as initially expected. (JG Photo/Dion Bisara)

Bank Indonesia kept its benchmark interest rate unchanged on Tuesday, taking a pause after 150 basis points of rate hikes since May, and warned that third-quarter economic growth may not be as strong as initially expected. (JG Photo/Dion Bisara)

Bank Indonesia kept its benchmark interest rate unchanged on Tuesday, taking a pause after 150 basis points of rate hikes since May, and warned that third-quarter economic growth may not be as strong as initially expected.

The seven-day reverse repurchase rate was held at 5.75 percent, which Bank Indonesia Senior Deputy Governor Mirza Adityaswara said is consistent with efforts to narrow the current-account gap and maintains the attractiveness of assets for foreign investors.

A Reuters poll had expected the central bank to pause its tightening cycle this week, taking advantage of relatively calm markets.

Bahana Sekuritas economist, Satria Sambijantoro, said the central bank may hike next month to pre-empt the United States Federal Reserve`s widely anticipated December rate increase.

Bank Indonesia "is merely reloading its ammunition before launching another monetary tightening in November," he said.

The rupiah, the second-worst performer among emerging Asian currencies, has remained around 15,200 to the US dollar in the past two weeks, near its weakest since the Asian financial crisis. It barely moved after Tuesday`s decision.

The currency is about 11 percent weaker than its end-2017 level, hurt by capital outflows triggered by rising US interest rates and the US-China trade war.

Higher borrowing costs may hurt medium-term economic growth. But although Bank Indonesia said loan growth continued to pick up in August, economic growth was expected to be slower than initially expected in the third quarter.

The deputy governor said growth in Southeast Asia`s largest economy in July-September was expected to be "a little less than 5.1 percent" and it may pull the rate for full-year 2018 to the lower end of Bank Indonesia`s 5.0 percent to 5.4 percent outlook.

Bank Indonesia attributed this to weaker-than-expected export growth due to unfavorable prices of commodities like palm oil and coal.

This, coupled with higher oil prices inflating imports, was likely to slightly widen the third-quarter current-account deficit from April-June, Adityaswara said.

The April-June gap was 3 percent of gross domestic product, already the largest in nearly four years.

Adityaswara said with US and neighbors` interest rates still rising, Bank Indonesia`s stance "will be to maintain the resilience of Indonesia`s balance of payments."

The full-year current-account gap will likely remain below 3 percent of GDP and efforts to rein in the deficit should bring it down to 2.5 percent in 2019, he said. The deficit was 1.7 percent last year.

Bank Indonesia officials had previously described the central bank`s stance as "hawkish," including when it made its fifth rate hike last month, but members of the board of governors refrained from using the word on Tuesday.

The government has raised import tariffs on a range of goods, delayed infrastructure projects and widened biodiesel use to curb imports and support the rupiah.

The central bank expected inflation to remain within its 2.5 percent to 4.5 percent target range through the end of 2018. September`s annual inflation rate was 2.88 percent.

https://jakartaglobe.id/business/bank-indonesia-stands-pat-rates-sees-slower-q3-growth/

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]

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