Central banks in Indonesia and the Philippines kept borrowing costs unchanged as expected, with both signaling rates will be steady in the near term to support their economies as price pressures ebb.
Decelerating inflation in the Southeast Asian nations supported the pro-growth bias of policymakers as they delivered their decisions within minutes of each other on Thursday. Bank Indonesia held its benchmark interest rate at 5.75% for a fifth straight month, while Bangko Sentral ng Pilipinas held its key rate at a 16-year-high of 6.25%.
Philippine central bank Governor Felipe Medalla said inflation this year is expected to come in at 5.4%, a tad lower than the 5.5% forecast in May. While the BSP sees price gains gradually returning to the 2%-4% target by October or November, its peers in Jakarta were reassured by consumer prices that were cooling faster than expected.
Bank Indonesia expects inflation to stay within its 2%-4% goal for the remainder of the year and lowered its end-2023 forecast to 3.2% from 3.3% previously, despite the El Niño risk factored into the second half.
“The decision is consistent with the monetary policy stance to ensure inflation remains under control in the 2%-4% range for the remainder of 2023 as well as 2024,” Bank Indonesia Governor Perry Warjiyo said at a briefing Thursday, adding that policymakers are focused on managing the rupiah to prevent imported price pressures.
Growth Outlook
Warjiyo sounded more optimistic at this month’s meeting, noting that improved mobility and income expectations should spur consumption and propel gross domestic product growth within a range of 4.5%-5.3% forecast by the central bank for this year.
For the Philippines, the pause is expected to support the economy, whose expansion slowed last quarter. President Ferdinand Marcos Jr’s economic team is targeting a growth of at least 6% this year amid global risks.
“Moderating inflation and more indications that inflation will settle within target allowed BSP to extend their prudent pause,” said Nicholas Mapa, an economist at ING Groep NV. “We expect BI to remain on hold for the next few months and only consider a pivot should the rupiah steady,” he said, referring to Indonesia’s rate path.
The Fed’s decision last week to hold supports the case for the central banks in the region to do the same, as it eases pressure on the currencies. Latest comments from Chair Jerome Powell indicated, however, that the inflation fight isn’t over.
The peso, among the better-performing currencies against the dollar in the region this month, held small gains after the decision.
The Indonesian rupiah was little changed at 14,940 per dollar while the yield on benchmark 10-year bonds held a one basis point drop to 6.30%.
The central bank has been using its dollar reserves to increase intervention in the currency market and steady the rupiah, BI’s Warjiyo said Thursday. The central bank will also continue selling short-term bonds and optimizing its FX term deposit facilities to help underpin the local currency.
--With assistance from Manolo Serapio Jr., Soraya Permatasari, Cecilia Yap, Eko Listiyorini, Norman Harsono, Matthew Burgess, Tomoko Sato, Chester Yung and Yudith Ho.
(Updates with more comments from Indonesia, Philippine officials)
Author: Claire Jiao, Grace Sihombing and Andreo Calonzo