Jakarta — Bank Indonesia Gov. Darmin Nasution Friday said the central bank sees no need to raise its benchmark interest rate from a record-low 5.75%, as monetary tightening wouldn’t address the fundamental problem of a widening current-account deficit.
“What’s happened lately is that we see that in line with the fundamentals of our economy there’s a need for a slight weakness in the rupiah,” he told reporters on the sidelines of a book launch at the central bank. “Increasing the benchmark rate doesn’t address external imbalances. That’s tightening, and tightening monetary policy isn’t the answer.”
Indonesia has run a current-account deficit for three straight quarters and recently posted its widest-ever monthly trade gap.
Gov. Nasution said, without elaborating, that the central bank will continue to seek ways to reduce rupiah volatility.
The rupiah is Southeast Asia’s worst-performing currency this year, having slid more than 5% against the U.S. dollar. In recent months, Bank Indonesia has spent billions of its foreign currency reserves to try to smoothen its decline.
Gov. Nasution also said on-year inflation in August is likely to come in slightly above 4.5%, within the bank’s 2012 target range of 3.5% to 5.5%. He said on-month inflation is likely to be 0.7% to 0.8%, mostly due to holiday spending during Ramadhan and higher wheat prices in the U.S. brought about by drought.
On-year inflation accelerated slightly to 4.56% in July from 4.53% in June.