Indonesia’s Central Bank Holds Interest Rate as Rupiah Weakens

Indonesia’s central bank kept its main interest rate unchanged for a fourth month, as a weakening rupiah curbs room for policy easing to boost growth.

Governor Agus Martowardojo and his board held the reference rate at 7.5 percent, Bank Indonesia said in Jakarta on Thursday, an outcome predicted by all 18 economists surveyed by Bloomberg News. The authority also maintained the rate it pays lenders on overnight deposits, known as the Fasbi, at 5.5 percent.

The decision underscores the dilemma for Indonesia’s policy makers, who have held off from cutting borrowing costs after joining global counterparts in a February easing. Their capacity to stimulate an economy growing at the slowest pace since 2009 has been constrained by inflation above 7 percent and a currency-weakening current-account deficit.

“They really don’t have much wiggle room in this environment,” Euben Paracuelles, an economist in Singapore at Nomura Holdings Inc., said before the decision. “Growth is slowing down but at the same time inflation is rising and the current account is still in a substantial deficit.”

Senior Deputy Governor Mirza Adityaswara said Wednesday Bank Indonesia wasn’t in a position to use interest rates to spur growth as cutting them would hurt the currency.

The rupiah has lost about 7 percent against the dollar this year to be the worst performer among major Asian currencies.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE