Indonesia Leaves Monetary Policy Unchanged

Bank Indonesia left its benchmark 7-day reverse repo rate unchanged at 6 percent on April 25th 2019, as widely expected. Policymaker said that the decision is consistent with efforts to strengthen the external stability of the Indonesian economy. The lending and the deposit facility rates were also left steady at 6.75 percent and 5.25 percent respectively.

Excerpts from the Bank Indonesia Press Release:

Economic growth in the first quarter of 2019 is predicted to remain strong, supported by domestic demand. Consumption remains high, supported by sustained purchasing power and public confidence and continued fiscal stimulus, including through social assistance and election-related spending. Investment slowed slightly in line with the seasonal pattern of the beginning of the year and is predicted to rebound in the following quarters supported by improving business confidence and continuing infrastructure projects. However, the role of net exports has not been strong in line with the impact of slowing global economic growth and declining commodity prices. Looking ahead, the prospect of economic growth remains strong supported by domestic demand in line with the confidence of economic players who are maintained. The policy mix of Bank Indonesia, the Government, and related authorities will continue to be strengthened in order to maintain the momentum of domestic economic growth which is predicted to be in the range of 5.0-5.4%.

The Indonesian balance of payments (NPI) in the first quarter of 2019 is predicted to be surplus so that it supports efforts to strengthen external stability.The outlook for the balance of payments is due to a forecast for a reduced current account deficit and a substantial surplus in the capital and financial account. The prospect of an improvement in the current account deficit was supported by an increase in the trade balance surplus of 0.33 billion US dollars in February 2019 to 0.54 billion US dollars in March 2019. The increase in surplus was influenced by increases in the non-oil and gas trade balance and a decline in the oil and gas trade balance deficit. Meanwhile, the capital and financial account surplus was quite large, supported by inflows of foreign capital, which up to March 2019 was recorded at US $ 5.5 billion. With this development, the position of foreign exchange reserves at the end of March 2019 reached 124.5 billion US dollars, equivalent to financing of 7.0 months of imports or 6.8 months of imports and payments of Government foreign debt, and is above the international adequacy standard of around 3 months of imports. Going forward, policy synergy will continue to be focused on efforts to strengthen external resilience. Steps to strengthen exports, including improving the performance of the tourism sector, and controlling imports will continue to be pursued so that the current account deficit 2019 can reach the range of 2.5% of GDP. The policy was also directed at attracting inflows of foreign capital to finance the current account deficit.

The rupiah exchange rate strengthened supported by the performance of the external sector which continued to improve. The Rupiah exchange rate on April 23, 2019 was recorded to increase 1.17% on a point to point basis compared to the end of March 2019 and 0.58% on average compared to the average of March 2019. When compared to the 2018 level, the Rupiah exchange rate also strengthened 2.17% as a point to pointand 0.80% on average. This development is inseparable from the development of large foreign capital inflows into the domestic financial market, including stock market inflows that continued in April 2019. Looking ahead, in line with the outlook for an improved external sector driven by the outlook for the domestic economy which remains positive and uncertain reduced, Bank Indonesia viewed the Rupiah exchange rate as stable with a well-maintained market mechanism. To support the effectiveness of exchange rate policies and strengthen domestic financing, Bank Indonesia continued to accelerate financial market deepening, particularly in the money and foreign exchange markets.

Inflation in March 2019 remained low and under control.

Indonesia Leaves Monetary Policy Unchanged

Bank Indonesia l Stefanie Moya |
4/25/2019 7:59:28 AM