Bank Indonesia retains benchmark rate amid global uncertainty

Bank Indonesia (BI) decided on Thursday to keep its seven-day reverse repo rate at 4.75 percent in response to global uncertainty following the outcome of the recent US presidential election.

“BI is responding to the uncertainty in consideration of a stable condition in the domestic economy,” BI governor Agus Martowardojo said in a press conference at the central bank’s office in Jakarta on Thursday.

Agus added that after the US election, which saw the victory of Republican candidate Donald Trump, global uncertainty as a result of the economic programs of the new government had made the rupiah volatile. A week after the Nov. 8 election, the rupiah depreciated 2.23 percent to Rp 13,340 per US dollar, but the year-to-date figure still shows that the currency appreciated by 2.97 percent.

“We need to be careful with upcoming US policy, such as expansionary fiscal movement, trade protectionism and a Federal Reserve rate hike,” Agus said.

Moreover, he added, the US economy had shown signs of recovery with better economic growth, decreasing unemployment and increasing inflation, which increase the odds of the Fed increasing its benchmark rate next month and put pressure on the world economy.

A Fed rate hike would potentially lead to capital outflow from emerging economies, like Indonesia, as investors would likely move their money in search of better yields.