June 15, 2017 / 10:41 AM / a month ago

UPDATE 1 -Indonesia c.bank stays with 'neutral' policy, holds key rate

3 Min Read

* Benchmark kept at 4.75 pct, its level since October

* C.bank says monetary stance remains neutral

* Inflation rate seen peaking in June

* Rupiah, stock market shrug off Fed rate hike

By Nilufar Rizki and Hidayat Setiaji

JAKARTA, June 15 (Reuters) - Indonesia's central bank, in a policy decision hours after the Federal Reserve raised U.S. interest rates, on Thursday left its benchmark interest rate unchanged, saying the current level still fits efforts to maintain stability and support growth.

Bank Indonesia (BI) kept the 7-day reverse repurchase rate at 4.75 percent, as expected by all 18 analysts in a Reuters poll.

The decision came shortly after the Fed raised United States interest rates for the second time in three months, and said it would begin cutting its bond holdings this year.

In the past, Fed tightening moves have sometimes triggered outflows from emerging markets such as Indonesia.

On Thursday, the rupiah barely moved and the Indonesian stock market edged down slightly.

Indonesia took the Fed rate hike "in its stride", Capital Economics said.

BI has said it is now in a better position to weather any external shocks. At the end of May, foreign exchange reserves were at a record high of $125 billion.

On Thursday, BI still listed changes in Fed policy as among the biggest global risks it is monitoring, along with the aftermath of the United Kingdom elections and developments with oil prices.

Dody Budi Waluyo, executive director of economic and monetary policy, said BI's policy stance remains neutral.

"We won't change our interest rate stance as long as there's no sign that... inflation expectations are pointing to pressures to core inflation," he said.

Stable Currency

The rupiah has been stable in recent weeks. Annual core inflation eased in May, although the headline reading was at a 14-year high of 4.33 percent.

In the Reuters poll this week, some analysts said BI will hold the key rate throughout 2017, while others expect a hike by year-end.

The World Bank earlier on Thursday said that by keeping its benchmark unchanged, "overall monetary conditions have temporarily become even more accommodative relative to second half of 2016 as the real interest has inched down due to moderately higher inflation."

Last year, BI trimmed its benchmark six times by a total of 150 basis points to try to boost lending and economic growth. It has also relaxed some lending rules to encourage banks to expand loans.

Southeast Asia's largest economy grew 5 percent in 2016, the first increase in six years, despite a soft rate in the fourth quarter.

In the first three months of this year, annual growth picked up only a touch, to 5.01 percent, but the government has been increasingly optimistic, with the finance minister forecasting 5.3 percent this year.

BI's outlook for growth this year remained the midpoint of its 5.0-5.4 percent range, the central bank said. Its 2018 projection is 5.1-5.5 percent. (Additional reporting by Gayatri Suroyo and Fransiska Nangoy; Editing by Richard Borsuk)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below