JAKARTA: Indonesia’s central bank left its benchmark interest rate at a record low to protect the currency amid uncertainty about the course of the pandemic, and said it had formulated a plan to deal with eventual United States policy tightening.

       Bank Indonesia (BI) kept the seven-day reverse repurchase rate at 3.5% yesterday, as all 28 analysts in a Bloomberg survey expected. Interest rates have been on hold since February’s 25-basis point reduction, and are widely expected to stay at this level throughout 2021.

       “The decision is consistent with the need to maintain the exchange rate and financial system amid low inflation, and for the economy to recover from the pandemic impact,” governor Perry Warjiyo said at a briefing in Jakarta. BI’s monetary policy will remain loose and accommodative, he said.

       The rupiah extended declines to 0.3%, trading at 14,422 a dollar as of 2:42pm in Jakarta yesterday. The benchmark Jakarta Composite Index of shares slid 2.4%, set for its lowest close since June 29.

       Indonesia Central Bank

       The decision comes with the central bank keen to protect rupiah stability, given the weaker economic outlook amid the pandemic and the risk that potential US monetary policy tightening could spark a sell-off of emerging-market assets.

       Indonesia was among emerging markets hardest hit in 2013 when the US Federal Reserve began unwinding its easy policy from the global financial crisis.

       This time, though, Warjiyo said BI had formulated a plan to deal with local fallout and had experience with policies to mitigate the impact, as well as ample foreign-exchange reserves.

       “I need to emphasise that the Fed’s tapering policy will not have as big an impact as the 2013 ‘Taper Tantrum’,” Warjiyo said.

       “It will affect us depending on how far we can manage the difference in domestic and foreign interest rates, especially portfolio investment, such as the yield on government securities.”

       South-East Asia’s largest economy grew faster than expected in the second quarter – up 7.1% from a year earlier – but the pace is expected to slow in coming quarters as mobility curbs largely remain in place, weakening consumption and business activity.

       The government expects the economy to grow 3.7%-4.5% this year. Warjiyo yesterday reiterated the central bank’s forecast for 3.5%-4.3% growth. — Bloomberg