Photographer: Dimas Ardian/Bloomberg

Bank Indonesia Keeps New Benchmark Interest Rate Unchanged

  • Survey showed economists were split on interest-rate decision
  • Bank Indonesia had cut previous benchmark four times this year

Indonesia’s central bank left its new benchmark interest rate unchanged in a decision that split economists, while lowering borrowing costs for commercial banks to help spur lending in Southeast Asia’s largest economy.

Governor Agus Martowardojo and his board kept the seven-day reverse repurchase rate at 5.25 percent on Friday, as forecast by half of the 24 economists surveyed by Bloomberg, while the rest had predicted a cut of 25 basis points. It lowered the lending facility rate -- which is the rate at which commercial lenders can borrow from the central bank -- by 100 basis points to 6 percent.

Bank Indonesia adopted the reverse repurchase rate as its main tool to better influence borrowing costs in the economy after four cuts to its reference rate earlier this year failed to spur lending. That gives the bank scope to pause while it assesses the effectiveness of the new benchmark before adjusting policy again.

“With growth struggling and inflationary pressures low, a rate cut is likely sooner rather than later,” Capital Economics Ltd. analysts Gareth Leather and Mark Williams, said in a note. “The economy could do with more support.”

Bank Indonesia said it lowered the lending rate to narrow the corridor around the benchmark rate. The policy stance is neutral and tending toward easing, Martowardojo told reporters in Jakarta.

Rate Corridor

“A symmetrical corridor between deposit and lending facility rates is the best practice internationally, so we’re returning to that,” Mirza Adityaswara, a senior deputy governor, told reporters.

The Jakarta Composite Index closed down 0.8 percent before the decision, paring gains to 18 percent this year. The rupiah eased 0.3 percent to 13,163 a dollar, prices from local banks show, and the yield on the nation’s five-year sovereign bonds rose four basis points to 6.85 percent, according to the Inter Dealer Market Association.

Indonesian President Joko Widodo said growth is forecast to reach 5.3 percent next year, in a budget speech delivered in Jakarta on Tuesday. That’s well below the 7 percent target he set when taking office in October 2014. The central bank on Friday projected growth of 5 percent in the second half of the year.

Policy makers are finding room to provide more stimulus to the economy as inflation slows. Consumer prices rose 3.2 percent in July from a year earlier and is forecast by the central bank to reach 3 percent to 5 percent this year.

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