Indonesia, Philippines Keep Rates Steady to Bolster Recovery
(Bloomberg) -- Indonesia and the Philippines kept borrowing costs unchanged, as expected, to aid the two economies that bore the brunt of Covid-19 outbreaks in Southeast Asia this year.
Bangko Sentral ng Pilipinas held the key rate steady at 2% Thursday, as predicted by all 20 economists in a Bloomberg survey. Shortly after, Bank Indonesia decided to keep its benchmark rate unchanged at 3.5% as expected by all 28 economists.
Policy makers in both countries have pledged to keep their stance accommodative to support demand as the economies reopen following curbs on movement and businesses to stem the virus. Any return to pre-pandemic settings appears some way off, and will depend on the pace of recovery and inflation, and the speed of U.S. Federal Reserve’s policy normalization.
Fed tapering is a factor for Indonesia, especially after the higher than expected inflation in the U.S., Bank Indonesia Governor Perry Warjiyo said. That said, he sees room for the rupiah to appreciate further and economic growth to accelerate this quarter, thanks to exports momentum, as well as household consumption and government stimulus programs.
The “Fed’s policy maneuvers will be watched closely,” said Radhika Rao, senior economist at DBS Bank Ltd. Signs of the Fed frontloading of hikes into 2022 will “require Bank Indonesia to revisit its policy path to mitigate downside pressures on the currency, particularly if domestic inflation also grinds higher next year on supply-side drivers and demand revival.”
The Indonesian rupiah edged 0.06% higher to 14,234 against the dollar, while the nation’s benchmark stock index fell further after the rate decision, down 0.7% as at 2:34 p.m. local time. The Philippine peso was steady in the absence of any surprises, while the country’s benchmark stock index closed 0.7% lower before the decision.
The two central banks have held borrowing costs steady for most of this year after one of the worst Covid-19 outbreaks became a drag on the economic recovery.
“There remains scope to hold monetary policy settings steady amid a manageable inflation environment,” Bangko Sentral ng Pilipinas Governor Benjamin Diokno said. “The BSP stands ready to respond to potential second-round effects arising from supply-side pressures, in line with its price and financial stability objectives,” he said.
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