Indonesia central bank keeps rates unchanged, to be patient on easing

By Gayatri Suroyo and Stefanno Sulaiman

JAKARTA (Reuters) - Indonesia's central bank kept policy rates steady on Wednesday to stabilise the rupiah and keep inflation within target, but said it would be patient over its next moves, with room to cut rates dependent on the currency.

Bank Indonesia (BI) left unchanged its benchmark 7-day reverse repurchase rate at 6.00%, where it has been since October, as unanimously expected by economists surveyed by Reuters. Its two other policy rates were also unchanged.

Global market uncertainty has eased, Governor Perry Warjiyo said, helping the rupiah stabilise and even showing tendency to strengthen as a tightening cycle by advanced economies is seen ending.

The central bank predicts the U.S. Federal Reserve starting easing in the second half this year, totalling 75 basis points.

Asked about room for BI to start easing, the governor said that would depend on how quickly the rupiah can strengthen, the inflation rate, and economic growth.

"We will remain patient to monitor domestic and global conditions," Warjiyo said.

The rupiah was unchanged after the announcement to keep rates steady and traded around 15,640 per dollar on Wednesday, down 0.34% from a day earlier.

BI targets inflation at a range of 1.5% to 3.5% in 2024, below 2023's target of 2% to 4%.

Indonesia's economic activities slowed last year amid declining exports and weakening household spending. Gross domestic product (GDP) growth in the third quarter was at its weakest in two years.

BI maintained its forecast that growth in Southeast Asia's biggest economy would pick up in 2024 to within a range of 4.7% to 5.5%, from 2023's forecast of 4.5% to 5.3%, on rising spending for an election and as the current government rushes to finish infrastructure projects.

With inflation staying within target, most economists have predicted BI's next move will be a cut, though some disagree on the timing, which may depend on the rupiah exchange rate's stability.

"The central bank is unlikely to have any impetus to provide dovish guidance or bring forward policy easing, until clarity emerges on the exogenous developments," said DBS economist Radhika Rao.

Bank Danamon forecast a 50 basis points cut by BI this year.

Its economist Irman Faiz said the central bank has reached its terminal rate but "BI's leeway for rate cuts this year may not match the extent of the Fed's adjustments, considering the anticipated widening trend of the current account deficit."

Indonesia central bank keeps rates unchanged, to be patient on easing