Bank Indonesia tightens reserve limits on lenders

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Bank Indonesia tightens reserve limits on lenders

The central bank of Indonesia tightened reserve limits on lenders while keeping the benchmark interest rate unchanged, as it seeks to withdraw excess liquidity without hurting the economy's recovery from the Pandemic.

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In a briefing Tuesday, Governor Perry Warjiyo said Bank Indonesia plans to raise the reserve requirement ratio for banks to 9% in September from previously announced 6.5%. It left the main seven day reverse repurchase rate at 3.5%, as predicted by 20 of 30 economists in a Bloomberg survey.

The increase in reserve ratio will force lenders to park more money with the central bank.

Indonesia's government bonds fell after the decision, while the rupiah was more muted, having strengthened about 0.2% against the dollar earlier Tuesday.

The move complements the government's efforts to check price pressures by boosting spending to subsidize energy costs this year. Bank Indonesia has had more room to keep rates at a record low to support the economy, even as its regional peers in Malaysia and the Philippines have joined other central banks in raising borrowing costs to combat inflation.

The core inflation measure tracked by Bank Indonesia for setting policy has remained below 3% despite the fact that Indonesia's headline inflation has risen to a three-year high of 3.5% fanned by volatile food costs.

The central bank maintained its growth forecast for this year at 4.5% -- 5.3%, a level closer to the rate of expansion seen before the epidemic. It kept its inflation target band at 2% -- 4% for the current year and the next year.

Some key points from the governor's briefing:

Governor Warjiyo said that none of the risks of global growth are inflation, global monetary policy normalization and geopolitical tensions.

Pressures will continue to go forward due to global commodities prices and the Indonesian inflation remains under control.

None also reiterates the 2022 deficit forecast at 0.5% -- 1.3% of gross domestic product.

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