Indonesia keeps wary eye on Fed hikes

HONG KONG: The pace of the United States Federal Reserve’s (Fed) interest rate hikes will be a key factor for whether or not Indonesia’s central bank adjusts policy over coming months, says deputy governor Perry Warjiyo.

“Our communication is clear and our signal is clear,” said Warjiyo in an interview in Washington. “We are holding our policy rate unchanged even though we have room for monetary easing, 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 last week as policymakers 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 per cent on Thursday. The bank lowered rates six times last year, with the last move in October.

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

While consumer prices rose at a slower pace than economists predicted last month, inflation is set to pick up this year.

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

Higher US interest rates impact emerging nations 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.” Bloomberg

We need open trade to drive our economic growth, that’s why we continue to work through multilateralism and open trade.