Bank Indonesia Holds Interest Rates, Cuts RRR

Bank Indonesia held its benchmark 7-day reverse repo rate at 5 percent during its November meeting, following four consecutive rate cuts, and lowered the reserve requirement ratio for lenders to provide additional liquidity and support GDP growth. The lending and the deposit facility rates were also left unchanged at 5.75 percent and 4.25 percent respectively.
Bank Indonesia | Chusnul Ch Manan | chusnul@tradingeconomics.com
11/21/2019 9:18:50 AM
Excerpts from the Bank Indonesia press release:

Bank Indonesia will continue to direct the full panoply of its policy instruments towards catalysing economic growth. Macroprudential policy shall remain accommodative to stimulate bank lending and expand economic financing, while maintaining financial system stability. Congruently, Bank Indonesia is also holding the Countercyclical Capital Buffer (CCB) at 0% and the Macroprudential Liquidity Buffer at 4%, with 4% repo flexibility. Meanwhile, payment system policy and financial market deepening have been strengthened to support economic growth. Going forward, Bank Indonesia will monitor domestic and global economic development in using its room to implement an accommodative policy mix in order to maintain controlled inflation and external stability as well as to support economic growth momentum.

Indonesia's economy remains resilient despite a moderate slowdown in line with the global economy. GDP growth in the third quarter of 2019 remained relatively stable at 5.02% (yoy), albeit down slightly from the 5.05% (yoy) recorded in the previous period. The main driver of resilient national economic growth remains household consumption, supported by a flourishing middle-class, the positive impact of consistent monetary policy to maintain price stability as well as the government’s social aid program (bansos) disbursements, which have maintained consumption amongst low-income earners. Building investment growth remains solid in line with the development of national strategic infrastructure projects. Meanwhile, exports continue to languish on dwindling demand and sliding international commodity prices, which have fed through to lower imports and weaker non-building investment. Economic growth is expected to regain upward momentum in the fourth quarter of 2019 on seasonal trends in line with fiscal expansion. Consequently, Bank Indonesia projects economic growth to reach around 5.1% in 2019.

The rupiah continues to appreciate in line with improving BOP performance. In November 2019, the rupiah appreciated by an average of 0.42% despite depreciating 0.41% (ptp) compared to the level recorded at the end of October 2019. Since the beginning of the year, therefore, the rupiah had gained 2.03% (ytd) as of 20th November 2019. The strong rupiah is supported by the supply of foreign exchange from exporters and maintained foreign capital inflows due to the favourable national economic outlook, highly attractive domestic financial markets and slightly less uncertainty in global financial markets. Moving forward, Bank Indonesia is confident that rupiah exchange rates will remain stable in line with the currency's fundamental value and maintained market mechanisms.

Low and stable inflation remains under control. CPI inflation in October 2019 was recorded at 0.02% (mtm) after recording 0.27% (mtm) deflation the month earlier. Annually, CPI inflation stood at 3.13% (yoy) in October 2019, down from 3.39% (yoy) in September 2019. Inflation remains under control in accordance with lower core inflation as a result of rational inflation expectations and monetary policy consistency by Bank Indonesia to maintain price stability, manage aggregate demand, ensure the exchange rate moves in line with the currency's fundamental value and minimise the impact of global prices. Volatile foods experienced another period of deflation, albeit shallower than the previous period. Meanwhile, inflationary pressures on administered prices have remained stable. Cumulatively as of October 2019, therefore, headline inflation stands at 2.22% (ytd). Bank Indonesia projects low inflation to persist, thus maintaining CPI inflation in 2019 at around 3.1%. Looking forward, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the central and regional governments to control inflation within the target corridor.

Bank Indonesia Holds Interest Rates, Cuts RRR



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