BI`s Key Rate Maintained to Control Inflation

Jakarta (Antara Bali) - Bank Indonesia (BI) maintained on Thursday its benchmark rate at 7.5 percent in an effort to keep the inflation rate under control, an executive of the Indonesian central bank said.

"The decision to maintain BIs reference rate was made at the BIs Board of Governors Meeting here on Thursday," BIs Executive Director for Communications Department Tirta Segara said at the BI office here on Thursday.

He said that BI had decided to maintain the key rate at 7.5 percent, with the lending facility rate and deposit interest rate at 7.5 percent and 5.75 percent, respectively.

"The policy is still consistent with the efforts to curb inflation at a rate of 4.5 percent, give or take 1 percent, in 2014, and 4 percent, give or take 1 percent, in 2015," Tirta noted.

He said that the policy was also consistent with the efforts to lower current transaction deficit to a healthier level.

In the meantime, BI Governor Agus Martowardojo said last week that BI will be ready in the market to protect rupiah stability amid the high volatility in exchange rate in connection with the presidential election on July 9.

"The competition is quite sharp in the presidential race. It has affected the exchange rate, although the seasonal factor in June is also a reason," Agus Martowardojo said on Friday.

Agus explained that the declining trend of rupiah lately was temporary, because it happens when the government has to repay foreign debts, and there were repatriation of profit of foreign companies, payment of dividends, and payment of loan interest.

In addition, the foreign exchange market was also under pressure of imbalance between supply and demand for the US dollar, he added.

However, a positive trend was noted after the Constitutional Court ruling that only one round of presidential election will be held.

Earlier, economic observer Aviliani from EC Think said the presidential election had no impact on the rupiah stability.

"I believe the election must not be blamed. What is required is the strengthening of our economic fundamentals," Aviliani said.

She said rupiah will continue to weaken until the US government tapering off is completed.

Investors have calculated their move until there will be no monetary stimulus, she said on Thursday night.

"Investors will wait until the process of tapering off is over before they again start to invest in Indonesia," she said.

Even now foreign funds continue to flow into the country, but the inflow has not been as strong as the market had expected, she pointed out.

"Unfortunately, we have always depended on hot money," she said.

However, the government has to continue with its program of infrastructure development to keep the economy growing, she said.

"Rupiah weakens as a result of infrastructure development, but it is a risk that has to be faced," she said.

She suggested that the government should consider seeking "standby loan" to strengthen its dollar reserve instead of curbing domestic demand.

"Curbing demand (for dollar) to strengthen rupiah will not solve the problem," she added.(WDY)