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Indonesia Keeps Interest Rate Unchanged


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Indonesia’s central bank left its overnight benchmark rate unchanged on Tuesday at 5.75 per cent, seeking to keep inflation under control while boosting the weak rupiah.

“Bank Indonesia’s interest rate policy is still aimed at controlling inflation,” the central bank’s director Difi Johansyah said in a statement.

“At the same time, we are strengthening monetary operations and making prudent macroeconomic policies… to stabilise the value of the rupiah.”

Year-on-year inflation eased to 4.45 per cent in May from 4.5 per cent in April as basic food prices fell during harvest season.

In a bid to shore up the rupiah, Bank Indonesia (BI) will begin offering term deposits starting on Wednesday to encourage domestic banks to keep more US dollars onshore.

Johansyah has said that the BI would offer “an attractive interest rate” to encourage lenders to park their dollars with the central bank rather than offshore.

Fears of Greece’s possible exit from the eurozone have sent investors to safe-haven assets, creating an onshore liquidity shortage and putting pressure on the local currency.

BI’s intention to intervene was announced last month as the rupiah hit a 30-month low, restraining the bank from cutting its policy rate to help fuel domestic growth amid economic instability abroad.

The bank said that while domestic demand in Indonesia was robust, the “worsening and uncertain crisis in Europe, and the vulnerability of the US economy” would likely slow Indonesian exports.

“In these global economic conditions, the economy in the second quarter is forecast to grow between 6.3 per cent and 6.7 per cent,” Johansyah said.

Indonesia’s gross domestic product expanded 6.3 per cent year-on-year in the first quarter, slower than the 6.5 per cent in the fourth quarter of 2011.

(Source: AFP)