The central bank of Indonesia left its key interest rates unchanged on Tuesday, citing an improved economic outlook and the stability of the rupee.
The Board of Governors decided to keep the BI 7-day repayment interest rate at 3.50 percent, Bank Indonesia said in a statement. This was in line with the expectations of economists.
The previous exchange rate change was a quarter-point decline in February.
The interest rate on deposits remained at 2.75% and the interest rate on the loan facility was 4.25%.
“This decision is in line with projected low inflation and efforts to maintain the stability of the rupee exchange rate, while accelerating the country’s economic recovery,” the central bank said.
Additional policy measures announced by the central bank included lowering the credit card interest rate cap from 2 percent to 1.75 percent per month.
The bank maintained its April forecast for this year at 4.1–5.1 percent.
The central bank said it would continue to strengthen its exchange rate stabilization policy in line with the rupee’s core value and market mechanisms through efficient monetary transactions and adequate market liquidity.
Bank Indonesia forecast a low and manageable current account deficit of between 1.0 and 2.0 percent of GDP for this year.
“We expect the central bank to keep policy rates unchanged in the near term, given the likely recurring risk of rising bond yields and currency pressures,” said Nicholas Mapa, an economist at ING.
“Interestingly, Warjiyo signaled that BI could reverse if inflation were to pick up, but he quickly explained that price pressures were unlikely to pick up before 2022.”
ING hopes that the bank will implement additional measures to strengthen bank lending through targeted initiatives to support investment activities without lowering additional interest rates.
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