Indonesia Leaves Rates Unchanged Again

Indonesia's central bank left its key interest rates unchanged on Thursday it expects inflation to remain low and economic expansion to be gradual.

Bank Indonesia left the 7-day reverse repo rate unchanged at 4 percent as expected. The bank had reduced the key interest rate four times this year to support the economy amid the crisis caused by Covid-19.

The overnight deposit facility rate and the lending facility rate were maintained at 3.25 percent and 4.75 percent, respectively.

"The decision is consistent with the need to maintain rupiah exchange rate stability against a backdrop of projected low inflation," the bank said.

The central bank also announced a host of stimulus measures that included an extension of the 50 basis points lower rupiah reserve requirements from December 31, 2020 previously until June 30, 2021.

This serves as an incentive for banks disbursing loans to small and medium enterprises and for export-import activity as well as to non-SMEs operating in priority sectors as stipulated in the national economic recovery program, the bank said.

The central bank expects the rupiah to regain lost value as the currency is still fundamentally undervalued. This strengthening will be supported by low and stable inflation, a narrow current account deficit, highly attractive domestic financial assets for investment as well as a lower risk premium in Indonesia.

Bank Indonesia projects inflation for 2020 and 2021 to remain under control within the 3.0 percent ±1 percent target corridor, and a low current account deficit below 1.5 percent of GDP this year, thus reinforcing external sector resilience.