Image: Reuters Berita 24 English - Indonesia's central bank left interest rates at a record low on Thursday, saying it was watching the ...
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| Image: Reuters |
Berita 24 English - Indonesia's central bank left interest rates at a record low on Thursday, saying it was watching the risks of rising inflation and would change monetary policy as needed.
Analysts think that Bank Indonesia will raise interest rates in the third quarter to support the rupiah currency, which is getting weaker because of rising interest rates in the U.S.
Most economists who took part in a Reuters poll thought that BI would keep the benchmark 7-day reverse repurchase rate at 3.50 percent. Its other two policy rates also stayed the same.
Since inflation has stayed in its target range of 2% to 4%, BI is one of the few major Asian central banks that has not raised rates from a pandemic record low. Thursday was the second time in a row that the central bank of the Philippines raised rates.
At a news conference, BI Governor Perry Warjiyo said he would keep an eye on inflation, including expectations of inflation, and take monetary steps as needed.
He said again that inflation might go a little over its target this year and reach 4.2% by the end of the year. He also said that the government had been stabilising the rupiah to keep imported inflation under control.
In the Reuters poll, economists said they think BI will raise rates for the first time in the next quarter.
Radhika Rao, a senior economist at DBS Bank in Singapore, said, "The central bank acknowledged the risk of inflation exceeding the target in the second half of the year and pressure on the currency from global cues, but did not show any urgency to normalise policy."
This month, the rupiah fell to its lowest level since October 2020. This happened because capital left Indonesia before and after the Federal Reserve raised U.S. interest rates by three-quarters of a percentage point.
But unlike when the U.S. tightened its money supply in the past, when Indonesian financial markets were some of the most volatile, the rupiah is now one of the best performing currencies in emerging Asia, having dropped by about 4% so far in 2022.
Indonesia's inflation has slowly been going up, and May's rate of 3.55 percent was the highest since 2017; however, it is still much lower than the rates in many richer countries.
BI cut interest rates by a total of 150 basis points and put billions of dollars into the financial system during the pandemic. As a first step toward normalising monetary policy, it has said that the banks' reserve requirements will go up by a lot.
