Bank Indonesia Holds Rate Steady to Shield Rupiah From Outflows

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Indonesia’s central bank left its benchmark rate unchanged Thursday to maintain currency stability amid continued capital outflows from the country.

Bank Indonesia kept the seven-day reverse repurchase rate at a record low 3.5%, where it has been since February, as expected by all 27 analysts in a Bloomberg survey. 

The U.S. Federal Reserve’s move to taper its pandemic stimulus more quickly than anticipated have put pressure on the rupiah, which has weakened nearly 2% against the dollar this year. Outflows from government bonds escalated last month as investors sold $2.15 billion, the most since March 2020. 

The central bank has said monetary policy next year will be conducted with a “pro-stability” focus, while macroprudential measures will remain supportive of economic recovery. Inflation is expected to remain benign, allowing Bank Indonesia to gradually shift its accommodative course, first reducing liquidity before contemplating interest-rate hikes late in 2022.

The recovery in Southeast Asian’s largest economy is expected to firm up next year as demand revives and the country’s vaccination drive continues. The economy is projected to grow 4.7%-5.5% in 2022, with inflation currently at 1.75%, expected to re-enter the 2%-4% target range.

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