Bank Indonesia today kept its key interest rate unchanged at record low as it seeks to continue lending support for economic recovery without risking stability of the rupiah.
The central bank kept the benchmark seven-day reverse repo rate at 3.50% for the seventh straight meetings, in line with analysts expectations.
“The decision is consistent with the need to maintain rupiah exchange rate stability and efforts for the economic recovery,” Bank Indonesia Governor Perry Warjiyo said.
Ready for Federal Reserve taper
This month meeting’s comes ahead of US Federal Open Market Committee meeting keenly followed by market participants to gauge the timing for the cutback in asset purchases.
Bank Indonesia estimated that the US central bank would start cutting back on its asset purchases in November.
With Bank Indonesia’s experience and assessment of current conditions, the monetary authority will be able to navigate the upcoming taper better, Perry said, reiterating that the scale down would not create a massive impact like the “taper tantrum” back in 2013.
Commodity price boost
Aside from interest rate policy, the rupiah received a boon from rising commodity prices. In August, the country’s exports and trade balance both came at all-time high.
“The surprise outperformance of the export sector will lend some support to the external account and in turn bolster IDR as the trade surplus swells,” Nicholas Mapa, senior economist at ING, said in a note.
“Bank Indonesia retained its accommodative stance primarily to help support the fledgling economic recovery… We believe that BI will keep rates untouched for the balance of 2021 given the current [low] inflation and growth situation,” he said.
Growth outlook maintained
Bank Indonesia maintained its economic outlook projection of 3.5%-4.3%, slightly below government’s estimate of 3.7%-4.5%.