Indonesia's Warjiyo Says There Is Room to Ease But Watching Fed

The pace of Federal Reserve interest rate hikes will be a key factor for whether or not Indonesia’s central bank adjusts policy over coming months, deputy governor Perry Warjiyo said.

“Our communication is clear and our signal is clear,” Warjiyo said in an interview in Washington. “We are holding our policy rate unchanged even though we have room for monetary easing from the domestic perspective, but we need to take into account global events such as increases in the Fed’s fund rate.”

The central bank left its benchmark interest rate unchanged this week as policy makers keep their focus on managing price pressures and bolstering the currency of Southeast Asia’s biggest economy.

Governor Agus Martowardojo and his board held the seven-day reverse repurchase rate at 4.75 percent on Thursday, as forecast by all 24 economists surveyed by Bloomberg. The bank lowered rates six times last year, with the last move in October.

“We are directing our monetary policy for stability,” Warjiyo said.

While consumer prices rose at a slower pace than economists predicted in March, inflation is set to pick up this year. The transmission of monetary policy is slower as banks become more conservative, it said.

Slowing private consumption means that first quarter growth is seen being below expectations, the central bank said this week, but this was expected to pick up in the second quarter, driven by exports and domestic consumption.

Higher U.S. interest rates impact emerging nations such as Indonesia by luring capital away and driving up the cost of dollar borrowing.

While Warjiyo is upbeat on the outlook for global growth, he said governments should resist efforts to shrink trade imbalances through imposing new tariffs or erecting other barriers.

“We need open trade to drive our economic growth, that’s why we continue to work through multilateralism and open trade,” he said. “Open trade is a key driver for global economic growth.”