Rupiah Stability is Priority Over Rates, Brodjonegoro Says

Indonesian Finance Minister on Rupiah, Nation's Economy
  • Government cannot intervene on rates, finance minister says
  • Growth may improve to 4.8 percent in the fourth quarter

Slower inflation has given Bank Indonesia room to cut interest rates, yet policy makers’ first focus should be on the stability of the currency, Finance Minister Bambang Brodjonegoro said.

With economic growth at its slowest since 2009, the central bank has come under varying degrees of pressure from the government this year to cut rates. Indonesia’s Vice President Jusuf Kalla stepped up calls this week, saying the monetary authority was legally obliged to listen to the government.

“I don’t think there is pressure because according to the law we cannot intervene, it’s just a dialogue,” Brodjonegoro said at the Bloomberg Asean Business Summit in Bangkok on Friday. “We have a good outlook for inflation this year, it will be less than three percent, so there could be room, but I think from our macroeconomic point of view we need to focus first on the stability of the exchange rate.”

Inflation slowed to within the central bank’s target range in November for the first time this year. Bank Indonesia flagged last month there was room to ease monetary policy, though most economists expect the authority to wait until after the U.S. Federal Reserve’s December meeting.

The likely resilience of the rupiah to a Fed move has improved from the middle of the year, Brodjonegoro said. The currency traded up 0.1 percent at 13,826 a dollar by 10:37 a.m. in Jakarta according to prices from local banks, having dropped about 10 percent so far this year to be Asia’s second-worst performer.

Economic Stimulus

The government will announce another set of stimulus measures on Friday, to focus on labor-intensive industries, Brodjonegoro said. Economic growth could improve in the fourth quarter to about 5 percent, meaning full year expansion of around 4.8 percent, he said. This would be a drop from 5 percent last year and is set to be the slowest since 2009.

Indonesia is trying to lift economic growth by cutting red tape and increasing infrastructure spending, at a time when its tax and commodity export revenues are falling short of targets. The country, which is rejoining the Organization of the Petroleum Exporting Countries at its meeting in Vienna this week, would like to see higher oil prices of around $70-$80 a barrel, as current prices are hurting government revenues, Brodjonegoro said.

Full coverage of the Asean Business Summit

Photographer: Sanjit Das/Bloomberg

“We are still exporting as well,” Brodjonegoro said. “We need to get better access to OPEC members in terms of getting imported crude oil in order to do more refineries in our country.”

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