BI maintains interest rate to anticipate Fed`s monetary tightening

BI maintains interest rate to anticipate Fed`s monetary tightening

Bank Indonesia (BI) (ANTARA News/Handry Musa)

Jakarta (ANTARA News) - Bank Indonesia decided to maintain its 7-Day Reverse Repo Rate" at 4.25 percent on Thursday in anticipation of the impact of The US Federal Reserve`s interest hike and potential domestic inflation.

The central bank also maintained the Deposit Facility rate at 3.5 percent and Lending Facility rate at 5.0 percent, the bank`s spokesman Agusman said at a press conference after BI`s board of governors meeting.

BI will still maintain its neutral monetary police this month, he said.

"There are several external economic risks such as global financial market uncertainty, tendency of inward oriented trade policy implementation and domestic inflation hike," Agusman said.

Specifically BI closely monitored the possibility of the Fed`s interest hike to be higher than it was predicted before from the baseline which has been three times this year. The Fed on Wednesday increased its interest rate for the first time this year by 25 basis points from 1.5 to 1.75 percent.

"It is possible the Fed`s interest will increase four times this year. But we predict the baseline will still be three times this year," the bank`s director of the department of monetary and economic policy, Yoga Affandi, said.

Other external risk, which is inward oriented policy, may cause trade war that will eventually reduce the trade volume and global economic growth.

As for the domestic situation he said BI has seen potential inflation hike in administered prices due to adjustment of non-subsidize oil prices and non-PLN (state power company) tariff.

Agusman said the country`s economic growth in the first quarter this year will be better than in the same period last year boosted by increasing government investment and consumption, stable private consumption and positive export performance.

Investment especially will increase in the construction sector in line with completion efforts in infrastructure projects and in primary sectors marked by increasing external demand, he said.

Private consumption will grow stable supported by people`s maintained buying power and increasing spending in connection with the implementation of regional elections.

The government`s consumption will increase due to acceleration in the distribution of social aid and village funds. In external terms exports are predicted to grow positively due to increasing world economic growth.

"Imports are also projected to increase to especially meet investment needs and exports of high imported content products. Due to the development Indonesia`s economy in 2018 is expected to grow 5.1 to 5.5 percent," Agusman said.

Reported by Indra Arief Pribadi