Bank Indonesia Sees No Need for Policy Move If CPI in Target

Bank Indonesia sees no reason to adjust monetary policy if inflation and the currency remain in line with its forecasts, Assistant Governor Dody Budi Waluyo said.

Inflation is still within the central bank’s target and the currency is stable, Waluyo said on a panel at Bloomberg’s Year Ahead Asia Conference in Jakarta on Wednesday.

“As long as our inflation expectations as well as our exchange rate expectations remain within our projections, then we will not change our policy rate,” he said.

The central bank has kept its benchmark interest rate unchanged at 4.25 percent following eight reductions since the beginning of last year — the most recent in August and September. It’s scheduled to make the next policy decision on Dec. 14. Inflation slowed to 3.3 percent in November and the bank’s target band is 3 percent to 5 percent.

Economic growth has been disappointing this year and the central bank will aim to keep inflation “as low as possible” to help boost consumers’ purchasing power, Waluyo said.

Fed Risks

With the Federal Reserve leading global central banks in tightening monetary policy, central bankers in Indonesia are turning their focus to the currency which may come under pressure as the dollar strengthens.

“At this time, our policy rate is sufficient to ensure our future inflation expectation is within the target for this year and 2018,” Waluyo said after the conference panel. “We are also calculating all risks potentially coming from around the globe, including three Fed rate increases next year and the continuing of the balance sheet reduction.”

The rupiah has weakened 0.4 percent against the dollar this year and was at 13,529 at 1:50 p.m. in Jakarta.

Michael Taylor, managing director and chief credit officer for Asia Pacific at Moody’s Investors Service, said at the conference that some Asian central banks may follow the Fed in raising interest rates next year. However, strong Asian growth should help sustain foreign inflows with the region less dependent and well-insulated against Fed hikes, he said.

— With assistance by Rieka Rahadiana, and Karl Lester M Yap

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