Bank Indonesia Holds Key Rate Steady While Lowering GDP Outlook

  • Indonesia’s central bank left its benchmark interest rate unchanged, and cut its outlook for economic growth, as it seeks to support an uneven recovery as foreign outflows pressure the country’s currency.
  • Bank Indonesia kept the seven-day reverse repurchase rate at a record low of 3.5% on 20 Apr 21, as expected by all 35 economists surveyed by Bloomberg.
  • The central bank said it now expects gross domestic product to expand 4.1%-5.1% in 2021, down from 4.3%-5.3% previously.
  • While the decision to stand pat was widely expected, “it has been adopted with currency stability in mind, in the midst of the still-unsettled global yield environment,” said Wellian Wiranto, an economist at Oversea-Chinese Banking Corp. in Singapore.
  • As recovery takes hold in advanced economies, investors have fled emerging markets like Indonesia, sapping demand for the country’s assets. The rupiah is one of Asia’s worst performing currencies so far in 2021, down 3.1% against the USD despite repeated central bank interventions.
  • Currency volatility has complicated Bank Indonesia’s efforts to support an economy still seeking its footing after its worst showing in more than two decades in 2020. Inflation remains below target and the economy is expected to contract further in 1Q21, but the rise in U.S. yields leaves Indonesian monetary authorities with limited room to cut rates further.

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