Indonesia Holds Rates at Record Low as Covid Curbs Extended

(Bloomberg) -- Indonesia’s central bank left its key interest rate unchanged for a second straight month, extending its pause after five cuts last year to help the economy weather the coronavirus pandemic.

Bank Indonesia held the seven-day reverse repurchase rate at 3.75% Thursday, as expected by 28 of 29 economists in a Bloomberg survey. Only one predicted a 25 basis-point cut.

Southeast Asia’s largest economy kicked off a mass vaccination program last week, a key step in helping the economy emerge from recession and bring growth back toward the the government’s 5% target for this year.

Central bank Governor Perry Warjiyo said Thursday the economy should grow 4.8%-5.8% this year, with inflation remaining within the 2%-4% target range. The central bank will continue its accommodative macroprudential policy, he said.

Thursday’s decision underscores the central bank’s efforts to stabilize its currency and prices as the country nears a million total Covid-19 cases. The rupiah has lost 1% against the dollar since Jan. 4, when it tested a seven-month high, as a surge in infections and deaths prompted stricter curbs on movement in Java, its most-populous island, and holiday destination Bali. The government said Thursday the curbs would be extended for an additional two weeks.

Indonesia’s current-account deficit, a chronic vulnerability, has recently become less of a concern to policy makers after the country posted a $21.7 billion trade surplus last year, a nine-year high. Room for further rate cuts has also been limited by gains in inflation, which recently has been driven higher by food prices.