Indonesia Leaves Rates on Hold

The Bank Indonesia left its benchmark interest rate on hold at 7.5 percent at its May 19th meeting but said it will loosen reserve requirements to banks, aiming to boost lending.

Reserve requirements for loan-to-deposit ratio, loan-to-value for mortgages and downpayment for car and motorcycle loans will be eased. The lending facility and the deposit facility rate were left unchanged at 8.0 percent and 5.5 percent respectively.

Excerpts from the statement by the Bank Indonesia:

The decision is in line with the tight bias monetary policy to keep inflation in its target of 4±1% in 2015 and 2016 as well as to manage the current account deficit at around 2.5-3% of GDP in the medium term. To keep the economic growth momentum, Bank Indonesia has loosened macroprudential policy by revising the LDR-RR regulation, LTV policy for mortgage loans as well as down payments on automotive loans. Furthermore, Bank Indonesia will also continue to strengthen coordination with the Government not only in terms of controlling inflation and managing the current account deficit, but also by accelerating fiscal stimulus to boost economic growth. To that end, Bank Indonesia supports government-led structural reforms to expedite infrastructure projects as well as continue various structural policies, therefore fostering economic agents’ optimism in the improving domestic economic outlook.

On the domestic front, growth slowed in Q1/2015 but is predicted to improve in subsequent periods. Bank Indonesia predicts economic growth to rebound, especially in the second semester of 2015, as consumption and investment increase in line with government fiscal spending and an increase in credit distributions by the banking industry. Moving forward, an acceleration in government spending and the implementation of infrastructure projects realisation is the key catalyst for growth in 2015.

Indonesia Leaves Rates on Hold

Bank Indonesia | Joana Taborda |
5/19/2015 1:46:36 PM