Indonesia central bank pauses after four rate cuts

JAKARTA: Indonesia’s central bank left its benchmark interest rate on hold after four reductions this year, while signalling there’s room for more easing to bolster growth in Southeast Asia’s biggest economy.

Governor Agus Martowardojo and his board kept the reference rate at 6.5 per cent on Thursday, as forecast by 10 of 26 economists surveyed by Bloomberg. The rest had predicted a cut of 25 basis points.

With inflation slowing and expected inflows from a tax amnesty set to boost the currency, policy makers may have room to resume rate reductions later this year. Inflation at 3.5 per cent is close to the lower end of the bank’s 3 per cent to 5 per cent target. Juda Agung, executive director of monetary policy, told reporters on Thursday there’s room to lower rates, though the current level is appropriate for now.

“They are still going to ease further this year but I think right now they’re just waiting to see the impact the previous four cuts are going to have,” Charu Chanana, an economist with Forecast Pte Ltd in Singapore, said by phone. “And of course, they will just wait to see how the tax amnesty is going to work out,”

The Jakarta Composite Index fell on the decision, closing down 0.5 per cent after being up as much as 0.5 per cent earlier. The rupiah strengthened 0.1 per cent to 13,100 a dollar, prices from local banks show, and the yield on the nation’s five-year sovereign bonds dropped four basis points to 6.84 per cent, according to the Inter Dealer Market Association.

“By considering the assessments, both macro and global, so far we see that the room for easing still exists going forward,” the central bank’s Agung said. “But for now, the stance is supportive and appropriate.”

Most economists had predicted the bank will cut interest rates on Thursday. — Bloomberg