Analyst: BI Rate Should Stay at 7.5 Percent

TEMPO.CO, Jakarta - Bank Indonesia (BI) should maintain its' benchmark rate at its' current rate of 7.5 percent in order to prevent foreign capitals from harming the domestic financial market, according to Bank Permata's Chief Economist for the Global Market, Joshua Pardede.

"BI is expected to maintain its' rate at its' current level because it needs to keep the Rupiah from depreciating further - a tighter monetary policy could assist Indonesia to reduce its' ongoing transactional balance deficit," said Pardede on Wednesday, April 22, 2015, in Jakarta.

It is known that the Rupiah continues to weaken against the greenback as well as other Asian currencies. The Rupiah depreciated by around 2.4 percent in March - the Rupiah had once traded at an average of Rp 13,071 against the greenback in March, significantly lower compared to the average rate in February, which stood at Rp 12,765 per US Dollar.

In fact, the Rupiah had dropped to a level of Rp 13,425 per US dollar between March 17 to March 18, 2015 - when the Federal Open Market Commission (FOMC) held a meeting which caused massive speculation among market players about the prospects of a Federal Reserve Bank of America (The Fed) Fund Rate Hike in the second quarter (Q2) of 2015, which was seen as unlikely considering the economic conditions in the US at that time.

Pardede said that the Fed's decision to postpone its' plan to increase its' fund rate is mainly driven by disapponting unemployment benefit claims figures, which had caused the depreciation of the Rupiah agaisnt some Asian currencies.

"The greenback's depreciation was a breath of fresh air for the Rupiah, which allowed to appreciate to Rp12,912 per US Dollar on March 24. That said, market players are still being bery cautious about the possibility ofna Fed rate hike, which will certainly happen sometime this year," said Pardede.

The Rupiah's depreciation in March was also made worse by the fact that the demand for the US Dollarin the domestic market significantly increased during that period, because the majority of the private sector's debt repayments are due in March.

It is known that In order to keep the Rupiah at a steady level, BI had intervened in the domestic market - a fact that is reflected by the marked decrease in Indonesia's foreign exchange reserves to US$111,6 billion in March, down from US$115,3 billion in February.

ANTARANEWS