Indonesia's Central Bank Leaves Key Rate Unchanged

Indonesia’s central bank kept its benchmark interest rate unchanged for the second straight month, signaling it’s in no hurry to adjust policy until it adopts a new framework in August.

Governor Agus Martowardojo and his board left the reference rate at 6.75 percent on Thursday, in line with the forecasts of all 19 economists surveyed by Bloomberg. The seven-day reverse repo rate, which becomes the new benchmark rate in three months time, was kept at 5.5 percent.

Policy makers cut interest rates three times this year in an attempt to revive growth in Southeast Asia’s largest economy. The door may be open for more easing later this year after inflation slowed to 3.6 percent in April and gross domestic product data disappointed last quarter.

“We can ease monetary policy if the room is available and supported by data,” Martowardojo said, adding the stability of the economy needed to be maintained.

Growth slowed to 4.92 percent in the first quarter, a setback for President Joko Widodo as he vows to spur investment and implement reforms. With exports and commodity prices under pressure, the government has been urging Bank Indonesia to join its regional and global counterparts to add more monetary stimulus. Malaysia’s central bank also held interest rates steady on Thursday.

Bank Indonesia cut its forecast for economic growth this year to between 5 percent and 5.4 percent, from a previous estimate of 5.2 percent to 5.6 percent, due to a weak global economy. It sees inflation at the mid-point of its 2016 target of 3 percent to 5 percent.

“Inflation in April was below 4 percent and that, besides the GDP surprise, makes the argument about additional policy stimulus stronger,” Prakash Sakpal, a Singapore-based economist with ING Bank NV, said by phone before the rate decision. “Bank Indonesia will take time. There have been signals that they will remain on hold until the new policy rate system is in place.”

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