Bank Indonesia to leave interest rates unchanged in July

Indonesia’s central bank is likely to leave interest rates at a record low on Thursday. However, economists expect a 25 basis point rate hike to support the rupiah and prevent capital outflows due to rising U.S. interest rates.

Given the relatively low inflation, Bank Indonesia will wait at least another month before joining the other central banks in raising interest rates.

Last week, the central banks of the Philippines and Singapore surprised markets by tightening policy outside the cycle, while Canada raised interest rates by 100 basis points.

Although Indonesia’s inflation rate rose to a five-year high of 4.35% in June, the country’s central bank remains one of the few central banks in Asia not to raise interest rates from record lows.

In the survey, about 60% of economists said the central bank would maintain its bond-buying rate at 3.50% and expected a 25 basis point increase.

“Bank Indonesia is expected to leave the benchmark rate on hold this week, citing manageable core inflation numbers and strong trade surpluses providing support to the rupiah,” noted Radhika Rao, senior economist at DBS.

Core inflation, which the BI says it will focus on more than the general number, was in the 2% to 4% range at 2.63%, but some economists expect it to move toward 4.0% soon.

The rupiah has lost about 5% so far this year, but has fared better than most other currencies. Some fear that the trend will not last.

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