BI holds its fire, cuts GDP growth forecast

Indonesia’s central bank kept its main policy rate at a record low yesterday and trimmed its 2021 growth forecast for Southeast Asia’s largest economy, while pledging to strengthen measures to keep the rupiah currency stable.

Bank Indonesia (BI) left the benchmark seven-day reverse repurchase rate at 3.50%, where it has been since February and as expected by all 27 analysts in a Reuters poll.

Governor Perry Warjiyo said a global economic recovery had been stronger than initially anticipated, underpinning demand for Indonesia’s exports, but warned that domestic consumption remained muted due to mobility restrictions to control the coronavirus pandemic.

BI’s forecast for economic growth this year was trimmed to 4.1-5.1% from 4.3-5.3% previously.

“Consumption is also improving according to various indicators ... but the level of improvement, based on the latest data, is lower than our earlier expectation,” Warjiyo told a streamed news conference.

BI would keep strengthening measures to keep the rupiah stable, he said, after the currency has been caught up in a broad sell-off in risk assets, driven by rising US inflation expectations and Treasury yields.

The rupiah has firmed slightly in the past few days but remains one of the worst performing currencies in emerging Asia, with losses of 3.2% so far this year. The currency gained slightly after the policy announcement.

Warjiyo said he believed the rupiah would continue to strengthen on portfolio inflows.

After suffering its first full-year contraction in over two decades in 2020, the economy is expected to post its first positive growth in five quarters in AprilJune as mass vaccination is rolled out, the government has said.

BI has cut interest rates by a total of 150 basis points, pumped 798.85 trillion rupiah ($55.11 billion) liquidity into the financial system and relaxed lending rules since 2020 to help Indonesia weather the pandemic.