(Bloomberg) -- Bank Indonesia Governor Perry Warjiyo said the central bank will be cautious about cutting interest rates in case of capital outflows amid persistently high US Treasury yields.
While borrowing costs were supposed to go lower if inflation slowed, “we still need to ensure global risks are manageable before cutting interest rates,” he said at a briefing in Jakarta.
Consumer prices rose just 2.13% in July from a year earlier, the slowest pace in more than two years, data released Thursday showed. While Bank Indonesia has previously said it will consider lowering rates later this year, Warjiyo reiterated the central bank’s focus is on maintaining the local currency’s stability, and through it prices.
Indonesia’s rupiah has dropped 6.6% against the dollar in the past year, even though its benchmark rate of 6.25% is above the 5.25%-5.5% level of the US, where the Federal Reserve this week said it could cut rates as soon as September.
Still-high Treasury yields and the threat of capital flow reversal remain the biggest risks for the rupiah, Warjiyo said. He also pointed to risks from unsynchronized global monetary policy, even as he acknowledged market views that the Fed may cut rates next month.
“We held at 6.25% while waiting for better global conditions, when there’ll be room to cut,” he said, referring to the rate decision in July.
Warjiyo was speaking at the quarterly press briefing by the Financial System Stability Committee, which includes representatives from the central bank, finance ministry and other agencies.
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