BENCH­MARK RATE OF 4.75PC ‘LOW ENOUGH’

Cur­rent level suf­fi­cient to sup­port growth, says Bank In­done­sia

New Straits Times - - Business World -

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.

BLOOMBERG PIC

The ru­piah has dropped 2.2 per cent against the US dol­lar in the past six months amid spec­u­la­tion the United States Fed­eral Re­serve will raise in­ter­est rates again.

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