Bank Indonesia holds interest rates amid currency volatility

Bank Indonesia (BI) has kept its policy rate unchanged on Thursday as expected, as it looks to maintain stability in the struggling rupiah currency following an unexpected spike in global volatility.

The BI held its seven-day reverse repurchase rate at 4.25 per cent for the fifth policy meeting. It also kept the floor and ceiling rates unchanged.

The central bank had surprised markets by cutting the rate by 25 basis points in August and again in September in a bid to boost lending and business activity, reports Reuters.

The BI governor Agus Martowardojo said, “This is consistent with the efforts to maintain macro stability and financial system as well as to support the domestic economy.”

The central bank also said it is watching global risks such as financial market volatility and will maintain a presence in foreign exchange markets to guard against excess volatility in the rupiah.

The governor said the BI’s monetary policy stance remained neutral, though deputy governor Perry Wardojo noted other measures introduced by the central bank will still help boost loan growth.

Earlier, in its previous meeting, BI had said it will accelerate moves to relax banks’ reserve requirements to give them more flexibility in managing their excess cash.

The BI has cut its key benchmark rate by 200 basis points since the start of 2016 in hopes of spurring credit growth and consumption, which makes up about half of the Indonesian economy.

But activity has been picking up only grudgingly, with the annual GDP growth rate stuck near 5.0 per cent since 2014 and loan growth remaining subdued, staying below 10 per cent since the start of 2016.