ECB, BI Keep Benchmark Rates, Signals Hold in Coming Months

European Central Bank decided that the interest rate on the main operations, marginal lending facility and the deposit facility will remain unchanged at 0.00 percent, 0.25 percent and -0.40 percent respectively - Photo by ECB Office

JAKARTA (TheInsiderStories) – European Central Bank (ECB) and Bank Indonesia (BI) holds its benchmark rates at the current level to provide more stimulus for the company, said the central banks on Dec. 14. The Banks also give signals to hold its key rates in the coming months

ECB’s President Mario Draghi said, the central bank decided that the interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 0.00 per cent, 0.25 per cent and -0.40 per cent respectively.

Draghi says the extraordinary stimulus measures have played a crucial role in the eurozone recovery and believes the 19-nation single currency zone remains heavily reliant on the bank’s cheap money policies.

In October, the bank decided to halve the size of its monthly asset purchases to EUR30 billion at the start of next year and to continue till September 2018 or beyond.

The bank confirmed this decision on Thursday and reiterated that they will continue until there is a sustained adjustment in the path of inflation consistent with the bank’s inflation aim of ‘below, but close to 2%’.

The euro turned mixed against its major opponent on Thursday (14/12), after the ECB left its key interest rates. The euro showed mixed performance in the Asian session. While it fell against the pound and the franc, it rose against the greenback and the yen.

BI Hold The Rates

While Indonesian central bank said, Board of Governors decided to keep the BI 7-day Reverse Repo Rate fixed at 4.25 per cent, with the Deposit Facility interest rate at 3.50 per cent and the fixed Lending Facility at 5.00 per cent, effective from Dec. 15, 2017.

It said, the policy is consistent with efforts to maintain macroeconomic and financial system stability and contribute to the recovery of the domestic economy while taking into consideration the dynamics of the global and domestic economy.

BI sees that the easing of monetary policy has been sufficient to continue to drive the momentum of the domestic economic recovery amid improved macroeconomic stability.

Going forward, Bank Indonesia remains wary of a number of risks, whether from global sources related to the normalization of monetary policy in some developed countries and geopolitical risks, as well as from domestic ones mainly related to the continued consolidation of corporations and banking intermediation that has not been strong yet.

The central bank sees that amid the ongoing global economic recovery and the stability of the domestic economy opens opportunities to create stronger and sustainable domestic economic growth through strengthening the implementation of structural reforms.

The global economic growth of 2017 is predicted to be stronger than 2016 with a more equitable source of growth from both developed and developing countries. U.S GDP growth improved on the back of increased investment and stable consumption.

In line with the US, the European economy recovered quite solidly buoyed by consumption and exports. The Chinese economy also improved on consumption and exports amid a gradual rebalancing policy. These developments further boosted world trade volume and global commodity prices, including oil, which was higher than the previous year.

BI sees, going forward world economic growth is expected to remain high along with commodity prices and strong trading volume. Nevertheless, a number of risks to the global economy need to be cautioned, such as the normalization of monetary policy in some developed countries and geopolitical factors.

Indonesia’s balance of payments (NPI) 2017 is expected to post a relatively large surplus with a controlled current account deficit below 2.0 per cent of GDP. The large surplus of NPI was mainly supported by increased capital and financial transactions compared to 2016, particularly in the form of direct investment and portfolio investment in line with improved investor perceptions of the domestic economic outlook.

On the other hand, the current account deficit is under control, mainly supported by the rise in non-oil and gas surpluses, amid considerable deficits in the balance of services and the balance of primary income, such as the deficit in transport services and repatriation of foreign investment returns.

Written by Linda Silaen, Email: linda.silaen@theinsiderstories.com