Indonesia Holds Policy Interest Rate at 4.25%

The Bank Indonesia held its benchmark repo rate at 4.25 percent on January 18th, as widely expected, but said would it accelerate the relaxation of its reserve requirement rules. The lending and the deposit facility rates were also left unchanged at 5 percent and 3.5 percent, respectively.

Excerpts from the Bank Indonesia Press Release:

In addition to the decision regarding policy rate, the BI Board of Governors also decided to accelerate the implementation of average reserve requirement ratios as a follow up on the monetary policy operational framework reform. Those refinements seek to increase the effective transmission of monetary policy, supporting banking liquidity management flexibility, while simultaneously accelerating financial market deepening. In total, conventional commercial banks are obliged to keep 6.5% of deposit’s worth of reserve requirement in Rupiah. Out of this number, the average mireserve requirement’s portion is loosened from 1.5% to 2% of deposit. Meanwhile, from conventional banks’ total reserve requirement in forex, which is 8% of deposit, the average reserve requirement of 2% is im reserve requirement is 5% of deposit, the average reserve requirement is set at 2% of deposit.

Indonesia’s economic growth in the fourth quarter of 2017 is estimated to remain stable, with an expected rise in 2018. In the fourth quarter of 2017, export performance is expected to be lower that the third quarter amid a relatively high imports growth, especially oil and gas imports. On the demand side, investment improved on the back of government infrastructure projects and the expanding role of private investment. Meanwhile, consumption growth remains sluggish. Consequently, the national economy is forecasted to grow in 2017 at 5.1%. Nevertheless, economic growth is projected to accelerate in 2018 in line with stronger domestic demand as investment increases along with household consumption and fiscal stimuli. Meanwhile, vibrant export growth is predicted for 2018 as the global economy continues to recover and international commodity prices remain high. In general, economic growth in 2018 is projected in the 5.1-5.5% range.

Low inflation has been maintained in 2017 within the target corridor of 4±1%. CPI inflation stood at 0.71% (mtm) in December 2017 and at 3.61% (yoy) for the year. Consequently, inflation over the past three years has consistently been maintained within the target corridor. Low core inflation and weak inflationary pressures on volatile foods as well as the managed impact of various tariff hikes in the form of administered prices have contributed to controlled inflation in 2017. Furthermore, positive supply and demand factors, mild external pressures as well as close policy coordination between Bank Indonesia and the Central Government and Regional Administrations have also supported controlled inflation in 2017. Bank Indonesia predicts inflation to remain within the target range for 2018, namely 3.5±1%.

Indonesia Holds Policy Interest Rate at 4.25%

Bank Indonesia | Joana Ferreira |
1/19/2018 10:16:20 AM