BENCHMARK RATE OF 4.75PC ‘LOW ENOUGH’
Current level sufficient to support growth, says Bank Indonesia
ASENIOR deputy governor at the central bank gave his clearest signal yet that policymakers are done cutting interest rates to spur the economy, saying the benchmark rate is “low enough”.
Boosting growth is “not about interest rates any more”, said Mirza Adityaswara, who is in charge of monetary policy, foreign-exchange reserves and currency management at Bank Indonesia, on Thursday.
“We monitor the external factors,” he said. “We think we’ve already cut enough.”
Bank Indonesia (BI) was Asia’s biggest rate cutter last year after six reductions to spur growth in Southeast Asia’s biggest economy. Since then, a weaker currency — fuelled by expectations of higher United States interest rates — and a pick-up in price pressures have put policymakers on hold.
The central bank last month kept its benchmark rate unchanged at 4.75 per cent, which Mirza said was “low enough”.
“The current interest-rate level is sufficient to support growth,” he said.
“So it’s not about interest rates any more. It’s more about how the demand side picks up and that depends a lot on business confidence” and the improvement in commodity prices, he said.
Indonesia’s economy grew five per cent last year and is forecast by the World Bank to pick up pace this year to 5.3 per cent.
After dropping below three per cent last year, inflation is starting to accelerate, reaching 3.8 per cent last month.
“It’s the strongest commentary” the bank has given recently on the interest-rate outlook, said Weiwen Ng, an economist at Australia & New Zealand Banking Group Ltd in Singapore.
The yield on Indonesia’s 10year government bonds rose three basis points to 7.53 per cent by 10am yesterday, here, after gaining the most in almost three months on Thursday.
The rupiah fell for a third day to 13,395 against the US dollar, the weakest level since January 20.
Keeping inflation under four per cent this year might be “a bit difficult”, said Mirza, adding that the central bank still thought it could maintain it at about that level.
The bank’s target range is three to five per cent.
Mirza said the bank was also guarding against any market fallout if the US raised interest rates again. Speculation of tightening by the Federal Reserve (Fed) has fuelled capital outflows in emerging markets, including in Indonesia, where the currency has dropped 2.2 per cent against the US dollar in the past six months.
The Fed is set to tighten policy next week, hours before BI makes its own rate decision on March 16.