Indonesia's central bank maintained its benchmark BI rate at 7.50 percent, as widely expected, and underlined its firm commitment to maintain a stable rupiah currency along with reducing the current account deficit towards what it described as a healthier level of 2.5 to 3.0 percent of GDP.
Bank Indonesia (BI), which last month reversed a 25 basis point rate hike at an unscheduled board meeting in November to quell any inflationary pressures from the government's increase in fuel prices, added that it "continues to beef up measures to keep the rupiah stable, including market interventions as well as purchasing government bonds in the secondary market."
"Going forward, Bank Indonesia will continue to consistently keep the stability of the rupiah at the exchange rate that is in line with its fundamental," BI said.
The rupiah has been depreciating steadily since May 2014 and has now surpassed lows seen in 2009, moves that have been welcomed by BI as being helpful for the country's exporters. Today the rupiah was trading at 13,180 to the U.S. dollar, down 5.6 percent this year.
Intervention in the foreign exchange market by the BI has been viewed by traders as smoothing out any volatility rather than an attempt to halt its decline.
BI said today the depreciation was "mainly due to continued strengthening of the US dollar against the all world's currencies, with a weakening of the euro due to the European Central Bank's quantitative easing program adding pressure to emerging market currencies, including the rupiah.
Indonesia was among the countries hit by the 2013 "taper tantrum" due to its current account deficit but BI said a surplus in the February trade balance was in line with its projections for an improvement in the current account in the first quarter of this year from the fourth quarter of 2014 when the deficit was US$6.2 billion, down from $6.8 billion in the third quarter.
For 2014 the current account deficit amounted to 2.95 percent of Gross Domestic Product.
BI noted that foreign reserves rose to US$115.5 billion at the end of February from $114.2 billion at the end of January, the equivalent of 7 months of imports, well above international standards.
BI was optimistic about 2015 growth prospects, saying it was expected to be better than last year, with growth between 5.4 and 5.8 percent, up from 2014's estimated 5.01 percent, mainly due to higher investments, strong consumption and gradually improving exports.
Inflationary pressures were also "easing further," BI said, moving to a point where they are in line with its 2015 target of 4.0 percent, plus/minus one percentage point. In February consumer price inflation eased to 6.29 percent, continuing to drop from December's 8.36 percent and January's 6.96 percent.
Bank Indonesia issued the following statement:
"Bank Indonesia board meeting on March 17, 2015 has decided to hold the BI Rate at 7.50%, setting the Deposit Facility rate at 5.50% and Lending Facility rate at 8.00%. This decision is in line with the ongoing efforts to keep inflation within the target of 4±1% for 2015 and 2016, and to control current account deficit towards a healthier level at 2.5-3% of GDP in the medium term. As consequence, Bank Indonesia also strengthens measures to keep the rupiah stable. Bank Indonesia's policy mix will be focused on efforts to maintain macroeconomic stability, amidst rising uncertainty in the global financial markets. In this context, Bank Indonesia remains strongly committed to strengthening its monetary and macroprudential policy mix, as well as stepping-up coordination with the government to curb inflation and current account deficit, while encouraging speedy structural reforms. With this regard, Bank Indonesia supports the government's continued measures in carrying out structural reforms that would in turn serve to strengthen the balance of payment.