Indonesia Central Bank keeps rate at 5.75 pct, citing stable inflation

Jakarta (ANTARA) - Bank Indonesia kept its key benchmark interest rate unchanged at 5.75 percent in September, pointing to well-controlled inflation and a negative output gap that allows space for economic expansion, an official said, Monday.

Speaking during a parliamentary hearing with Commission XI of the House of Representatives, Bank Indonesia Senior Deputy Governor Destry Damayanti said consumer price growth remains comfortably within the central bank's target range, with core inflation recorded at 2.92 percent year-on-year in August.

“Our anchor is inflation, and we are still comfortable with inflation at its current level. Moreover, we see that core inflation is still around 2 percent,” Damayanti told lawmakers.

Stress-testing by the central bank indicated that a rate hike could weigh heavily on domestic economic momentum.

Bank Indonesia estimates that a 25-basis-point increase in the BI-Rate would reduce national economic growth by approximately 0.1 percentage point.

The central bank noted that Indonesia continues to operate below its full economic potential.

“If it is still negative, that means there is still room for economic growth without causing excessive inflation,” Damayanti said.

To attract foreign capital without tightening monetary policy or increasing yields on Bank Indonesia Rupiah Securities (SRBI), policymakers have instead relied on non-rate instruments, including hedging incentives on capital inflows.

Damayanti confirmed that the policy, introduced a month ago, has already successfully drawn approximately $6 billion in foreign capital through Domestic Non-Deliverable Forward (DNDF) and currency swap transactions.

“Without raising interest rates or the SRBI rate, we hope to see inflows. And fortunately, with this hedging incentive policy, which we introduced about a month ago, we have already seen inflows of around $6 billion, both through DNDF and swap transactions,” she added.

Following its September Board of Governors meeting, Bank Indonesia also maintained its deposit facility rate at 4.75 percent and its lending facility rate at 6.50 percent.

Translator: Bayu Saputra, Kuntum Khaira
Editor: Aditya Eko Sigit Wicaksono
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