Indonesia's central bank maintained its benchmark BI 7-day RR rate at 4.75 percent and struck an optimistic tone by saying the "improvement in the national economic outlook is expected to continue, with stronger growth combined with maintained macroeconomic and financial system stability."
Bank Indonesia (BI) cut its new benchmark rate twice last year by a total of 50 basis points following four cuts in its previous benchmark rate by a total of 100 points from January through June.
Despite the risks from U.S., China, higher oil prices and inflation from higher fuel and electricity prices, BI said it expects gains in exports to continue, not only in commodities but also in manufactured products.
Although government spending was lower than expected in the fourth quarter of last year, BI said consumption and investment was "solid" and exports "surged" while commodity prices rebounded.
Growth for 2016 was seen around 5.0 percent, the same forecast as in December and up from 4.8 percent in 2015, and this year the central bank expects the economic recovery to continue, driven by exports and investments with stable household consumption.
In the third quarter of last year Indonesia's Gross Domestic Product grew by an annual rate of 5.02 percent, down from 5.19 percent in the second quarter.
For 2017 BI has forecast growth of 5.0 to 5.4 percent.
Like many other emerging market currencies, Indonesia's rupiah fell in response to the election of Donald Trump as U.S. president in November last year. Although it rebounded in December, the rupiah remains below the level seen before Trump's election.
The rupiah was trading around 13,386 to the U.S. dollar today, down 2.2 percent since the U.S. election but up 0.8 percent since the start of this year.
BI said the appreciation of the rupiah in December was due to a "deluge" of capital inflows to the government bond market while the outflow from its stock market decreased after the U.S. Federal Reserve's rate hike, with a reversal seen at the end of December.
In 2016 the rupiah appreciated by 2.32 percent, the BI said, on positive investor perception of the domestic economy but it added that it would remain vigilant of the risks from global financial uncertainty and stabilize the exchange rate in line with its fundamental value.
Indonesia's inflation rate eased to 3.02 percent in December from 3.58 percent in November, close to the central bank's lower target range of 3.0 to 5.0 percent, with BI saying this was due to low core inflation and minimal administered prices while inflation pressures on food remained.
Bank Indonesia issued the following statement: