Indonesia's central bank on Thursday kept its key reference rate unchanged at 7.50 percent as expected. Bank Indonesia (BI) said the decision to keep rates unchanged was consistent with efforts to limit inflation to around 4.5 percent this year and 4 percent next year, and to improve the current account balance. All 11 analysts in a Reuters poll had predicted that BI would keep its policy rate at 7.50 percent for an eighth straight month.
The central bank also left the deposit facility rate, or FASBI, and lending facility rate at 5.75 percent and 7.50 percent, respectively. Thursday's decision came one day after Indonesians voted for their new president and as they begin a nearly two week wait to learn whether Jakarta Governor Joko "Jokowi" Widodo or former army general Prabowo Subianto will be their leader.
Most quick counts by non-state polling organisations show Jokowi won Wednesday's vote, but some little-known pollsters put Prabowo ahead. The official election commission won't report the official result until July 22. The winner will start a five-year term in October. "The foreign capital inflow is slightly hindered waiting for the presidential election," central bank spokesman Tirta Segara said.
Markets, however, brushed off the political uncertainty in Southeast Asia's largest economy, with stocks rising to a one-year high on Thursday and the rupiah at a seven-week high. "We will have an (election result) announcement in two weeks without much difference from the quick counts. So there shouldn't be any worry in the market," said David Sumual, chief economist at Bank Central Asia in Jakarta.
BI has raised the benchmark rate by a total of 175 basis points between June and November to support the then-frail rupiah, battle inflation and help contain the wide current-account deficit. The rate hikes have contributed to a slowdown in economic growth, but economists agree Indonesia had to tighten monetary policy to bolster the currency and contain the current-account deficit -
and they expect policy to remain tight when the new president takes office in October. Gareth Leather, economist with Capital Economics, said Indonesian's new president "should not expect any favours from the central bank as he looks to revive the economy." BI may have some scope to cut rates "over the next year or so" but any loosening of policy "is likely to be very gradual", Leather said.
BI aims to keep the current account deficit to 3 percent of the gross domestic product this year, from 3.3 percent last year. Governor Agus Martowardojo said last week that the deficit could be around 4 percent of GDP in the second quarter. The rupiah strengthened 0.43 percent against the dollar on Thursday, apparently on anticipation that Jokowi will be declared the winner. In the days just before the voting, the rupiah rose on anticipation that he would defeat Prabowo. So far this year, the currency has gained more than 5 percent against the dollar. Last year, it plunged more than 20 percent.
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