Bank Indonesia Raises the BI Rate to 7.25%

Bank Indonesia decided on September 12th to raise the BI Rate for the fourth time this year by 25 bps to 7.25 percent and after having raised it by 50 bps later August. The central bank attempts to stabilize the rupiah, control the inflation rate and the current account.

Excerpt from the statement by the Bank Indonesia:

Bank Indonesia revised down its projection for domestic economic growth in 2013 to 5.5-5.9 percent from 5.8-6.2 percent previously. Domestically, the economic slowdown is evidenced by a number of surveys conducted by Bank Indonesia, like the Retail Sales Survey and the Consumer Confidence Survey, which indicate that household consumption will tend to decelerate during the second semester of the current year. Several investment indicators, like imports of capital goods, heavy equipment sales and electricity consumption in the manufacturing sector, all confirm that non-construction investment will suffer a contraction in semester II-2013. Externally, real exports are expected to improve amid lower export commodity prices from Indonesia.

Indonesia’s balance of payments is predicted to improve based on a smaller oil and gas trade deficit, subsequent to running a large deficit in July 2013 due to large-scale imports of oil and gas as buffer stock to offset demand during the religious holiday of Eid ul-Fitr.

Bank Indonesia expects inflationary pressures to continue to dissipate, with a low level of inflation predicted in September 2013. The prospect of less intense inflationary pressures is also subject to the impact of weaker domestic demand as well as measures to strengthen policy coordination between Bank Indonesia and the Government in terms of inflation control. Consequently, the rate of inflation in 2013 is projected in the range of 9.0 - 9.8 percent, subsequently declining thereafter to 4.5±1 percent in 2014.

Bank Indonesia Raises the BI Rate to 7.25%

Bank Indonesia | Joana Taborda |
9/12/2013 11:51:20 AM