Indonesia c.bank holds rates, cites global volatility for weaker rupiah

Band Gayatri Suroyo and Fransiska Nangoy

JAKARTA, July 21 (Reuters)Indonesia’s central bank left interest rates unchanged at a record high on Thursday but stepped up monetary policy normalization on other fronts, while blaming the rupiah’s weakness on global market volatility.

Bank Indonesia (BI) declared the current level of the benchmark 7-day reverse repurchase rate IDCBRR=ICE of 3.50% remained in line with its low underlying inflation forecast and the impact of slowing global economic growth on the domestic economy.

BI is one of the few major Asian central banks that has not raised interest rates from pandemic-era levels. His decision not to move them on Thursday was predicted by most analysts polled by Reuters.

“Even though we have decided that the BI rate will remain at 3.50%, we are accelerating the normalization or the monetary policy response,” Governor Perry Warjiyo said during an online press conference.

BI will raise the interest rate structure in the money market, strengthen rupiah stabilization measures to control imported inflation and sell off some of its large holdings of government bonds, a move that will push bond yields higher. , said Warjiyo.

Growth in Southeast Asia’s largest economy would be skewed towards the lower end of BI’s estimate of 4.5% to 5.3% as slowing global economic growth could lead to lower exports, while higher inflation would affect private consumption, he said.

The headline inflation forecast at the end of 2022 was raised to 4.5% to 4.6%, from 4.2% previously, but Warjiyo said core inflation would remain within BI’s target range of 2 % to 4%.

Many central banks around the world have raised their interest rates to combat soaring inflation.

The European Central Bank will discuss whether to raise interest rates 50 basis points higher than expected later on Thursday, while the US Federal Reserve is expected to announce another big rate hike next week.

Analysts have warned BI that keeping rates unchanged would widen spreads with other countries, making Indonesian assets less attractive to foreign investors and putting downward pressure on the rupiah. RDI=.

Warjiyo said that fundamentally the rupee should strengthen as exports were strong and the current account could show a surplus this year, but he noted that global events were putting pressure on currencies around the world.

The 2022 current account could range between a 0.3% gross domestic product (GDP) surplus and a 0.5% deficit, he said. Previously, BI forecast a deficit of 0.5% to 1.3% of GDP.

(Reporting by Gayatri Suroyo, Fransiska Nangoy and Stefanno Sulaiman; Editing by Bradley Perrett and Ed Davies)

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