UPDATE 1-Indonesia c.bank holds key rate as activity picks up, eyes Fed tapering
(Updates throughout, adds central bank comments and details)
* C.bank keeps benchmark rate at 3.50% for 7th straight review
* Reiterates impact of Fed tapering likely to be less than in 2013
* Says economic activity improving, maintains 2021 GDP forecast
JAKARTA, Sept 21 (Reuters) – Indonesia’s central bank left its main policy rates steady at a record low on Tuesday, saying the decision was in line with the need to support the economy while keeping the rupiah currency stable.
Bank Indonesia (BI) kept the benchmark 7-day reverse repurchase rate at a record low of 3.50% for a seventh straight policy review, as expected by all 25 analysts in a Reuters poll.
While the central bank said domestic activity picked up after a recent easing of coronavirus curbs, the central bank kept its 2021 growth target range unchanged at 3.5% to 4.3% after a downgrade in July.
“The decision is in line with the need to maintain foreign exchange stability amid low inflation and efforts to support economic growth,” Governor Perry Warjiyo said in a streamed news conference.
The rupiah strengthened slightly after the rate decision.
The currency has come under pressure in recent months on expectations the U.S. Federal Reserve could soon begin to taper its bond purchases. It has gained nearly 1% since BI’s last meeting, but is still down 1.4% on the year.
While Warjiyo said it expected Fed tapering to start in November, he reiterated he did not expect Indonesia to be as affected as during the 2013 “taper tantrum”, when the rupiah lost more than 20% of its value against the dollar.
Warjiyo said the rupiah “has a tendency to strengthen or at least remain stable” as the economic outlook brightens, capital inflows continue and the country’s external balance improves.
Southeast Asia’s largest economy pulled out of recession in the second quarter.
While the recovery momentum was hit by fresh mobility restrictions in July and August of this year, the central bank said domestic activity has gradually improved since curbs were eased in late August.
The resource-rich nation also posted a record trade surplus in August, as exports were buoyed by lofty commodity prices, which analysts say could underpin the rupiah.
“The economic outlook has improved since BI’s last meeting, which suggests there is little need for further easing,” said Gareth Leather, an economist at Capital Economics.
BI has cut interest rates by a total of 150 basis points and has launched a quantitative easing programme since the pandemic started.
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