Bank Indonesia leaves rate unchanged

Bloomberg

Indonesia’s central bank left its benchmark interest rate unchanged on Tuesday, opting to save some of its policy ammunition for possible further market volatility triggered by higher US rates.
The seven-day reverse repurchase rate was held at 5.75 percent, in line with the forecasts of 21 of the 30 economists surveyed by Bloomberg. Senior Deputy Governor Mirza Adityaswara, who announced the decision at a briefing in Jakarta, said further action will depend on the outlook for the current-account deficit, inflation and the exchange rate.
Bank Indonesia’s 150 basis points of rate increases since mid-May and steps taken by the government to curb imports are starting to pay off: investors pumped $1.4 billion into government bonds in the third quarter compared with $2.3 billion of outflows in the previous three months.
While that’s helped to slow the rupiah’s slide — it’s been fairly stable since Oct. 5 — Bank Indonesia isn’t out of the woods yet. The US Federal Reserve is on track to tighten policy further, while global trade tensions continue to mount, threatening to extend the rout in emerging markets.
“Our base case remains a gradual increase of the policy rate going forward as the economy is expanding below potential and Bank Indonesia may want to maintain an attractive interest rate differential compared to peers amid a rising Fed fund rate,” said Aldian Taloputra, a Jakarta-based economist at Standard Chartered Plc.
Most economists surveyed by Bloomberg see Indonesia hiking rates into next year as policy makers keep their focus on the currency. The rupiah has dropped about 11 percent against the dollar this year, among the worst performers in Asia. “We think that BI will maintain a tight monetary stance with the opportunity for another 25 basis points hike in November in anticipation of a Fed hike of 25 basis points at its December meeting,” said Josua Pardede, an economist with PT Bank Permata in Jakarta.
The Jakarta Composite Index fell 0.7 percent at the close on Tuesday. The rupiah was little changed and traded at 15,192 against the dollar, while the yield on the nation’s 10-year sovereign bonds was little changed at 8.6 percent.

CURRENT ACCOUNT
For now, policy makers can hold off on raising rates given a benign inflation environment, weaker economic growth prospects and a surprise trade surplus in September. Consumer prices rose at their slowest pace in more than two years at 2.9 percent in September, well within the central bank’s target band of 2.5 percent to 4.5 percent.
Authorities have taken stronger steps to rein in a current-account deficit of 3 percent of GDP, one of the key risks to the currency.