Indonesia Holds Key Rate Steady at 7.5%

The Bank Indonesia left its benchmark interest rate on hold at 7.50 percent on October 15th 2015 as widely expected, but said there's room for monetary policy easing in the future as macroeconomic pressures eased. The lending facility and the deposit facility rate were also left unchanged at 8.0 percent and 5.5 percent respectively.

Excerpt from the statement by the Bank Indonesia:

Bank Indonesia was convinced that the 2015 inflation will stay within the lower half of the 4% target corridor, while the current account deficit was predicted at a healthier level than previously thought, namely around 2% of GDP at yearend. Domestic economic growth was expected to rebound on the back of greater government capital spending despite relatively sluggish activity in the private sector. Bank Indonesia believed that the pressures on macroeconomic stability has eased, making room to loosen its monetary policy. However, with a high uncertainty in the global market, Bank Indonesia will remain vigilant and continue to monitor global risks despite more conducive conditions on global financial markets. Consequently, BI policy will continue to focus, in the near term, on currency stabilisation measures by continuing to maintain the Rupiah stability, strengthening rupiah liquidity management as well as the supply and demand of foreign exchange.

The rupiah rebounded at the beginning of October by 9.3 percent after intense depreciatory pressures were felt in September 2015. Rupiah appreciation stemmed from positive sentiment regarding the possible delay of FFR hike and optimism concerning the domestic economic outlook after the government released a series of policy packages and Bank Indonesia intervened to stabilise the exchange rate. The combination of policy packages spurred an influx of foreign capital to financial markets in Indonesia, which subsequently propped up the Rupiah. 

Financial system stability remained solid, underpinned by a resilient banking system and relatively stable financial markets. Banking industry resilience endured, with credit, liquidity and market risks well mitigated. In August 2015, the Capital Adequacy Ratio (CAR) remained well above the 8% minimum threshold at 20.5%, while non-performing loans (NPL) were low and stable at 2.8% (gross) or 1.4% (net). In terms of the intermediation function, credit growth accelerated to 10.9% (yoy). Deposit growth in August 2015 was recorded at 13.2% (yoy). Looking forward, credit growth is predicted to continue accelerating in line with an increase in economic activity and the looser macroprudential policy stance adopted by Bank Indonesia.

Indonesia Holds Key Rate Steady at 7.5%

Yekaterina |
10/15/2015 6:00:59 PM