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Interest rate not Indonesia central bank's first choice at this juncture: Official

Interest rate not Indonesia central bank's first choice at this juncture: Official

FILE PHOTO: A woman wearing a protective mask walks on the sidewalk of the road near a traditional market amid of the coronavirus disease (COVID-19) pandemic in Jakarta, Indonesia, July 30, 2021. REUTERS/Willy Kurniawan

JAKARTA: An interest rate hike will not be Bank Indonesia's first choice at this juncture, the central bank's deputy governor told the Reuters Global Markets Forum on Friday (Aug 12), even as the country's headline inflation rate rose to a 7-year high.

"We have room to increase the policy rate … But at this juncture, I think we will not put this as a first choice in our policy sequence," Dody Budi Waluyo said in an interview.

Indonesia's headline inflation rate rose to 4.94 per cent in July, above Bank Indonesia's (BI) 2 per cent to 4 per cent target range, but core inflation rate remained within target at 2.86 per cent.

Calls for a rate hike have also gathered pace after data earlier this month showed Southeast Asia's largest economy grew 5.44 per cent on an annual basis in the second quarter, more than expected.

BI is set to hold its monthly policy review on Aug 22 and Aug 23.

Waluyo said BI will work with the government to address supply issues that had pressured consumer prices, adding: "We will not let headline inflation go up".

He also repeated that BI will only raise rates when it sees a persistent rise in core inflation.

BI is one of very few Asian central banks that has not lifted its benchmark rate from a record low of 3.50 per cent, as earnings from commodity exports have shored up Indonesia's economic resilience.

Indonesia is in a better place to navigate current financial market volatility amid a global monetary tightening and rising geopolitical tensions, Waluyo said.

He defended BI's policy normalisation measures, saying it was not behind the curve as it had moved to tighten liquidity in the financial markets.

He added that as host of the Group of 20 major economies, Indonesia hopes tension in the Taiwan Strait does not derail discussions and efforts to accelerate economic recovery from the COVID-19 pandemic.

Source: Reuters/ic

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