Indonesia Keeps Interest Rate Unchanged

Bank Indonesia left its benchmark 7-day reverse repo rate at 5 percent during its December meeting, as widely expected. The decision consistent with effort to anchor inflation and support GDP growth. The Bank added that will continue to monitor global financial market conditions and the external stability of the economy. The lending and the deposit facility rates were also held unchanged at 5.75 percent and 4.25 percent respectively.
Bank Indonesia l Chusnul Ch Manan | chusnul@tradingeconomics.com
12/19/2019 8:59:55 AM
Excerpts from the Bank Indonesia press release:
The BI Board of Governors agreed on 18th and 19th December 2019 to hold the BI 7-Day Reverse Repo Rate at 5.00%, while also maintaining the Deposit Facility (DF) and Lending Facility (LF) rates at 4.25% and 5.75%. Monetary policy remains accommodative and is consistent with controlled inflation in the target corridor, maintained external stability as well as efforts to maintain domestic economic growth momentum against a backdrop of global economic moderation. Bank Indonesia will maintain accommodative macroprudential policy to stimulate economic financing in line with the suboptimal financial cycle, while also paying due consideration to prudential principles. 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. In addition,
 
At home, national economic growth momentum has been maintained on household consumption, fiscal expansion and improving export performance. Consequently, Bank Indonesia is anticipating stronger economic growth in the fourth quarter of 2019, thus bringing growth for the year to around 5.1% in 2019 before increasing in the 5.1-5.5% range in 2020.

Indonesia's balance of payments is expected to continue gaining strength in the fourth quarter of 2019, thereby reinforcing external resilience.  The main contributors to the BOP gain are the capital and financial account surplus and manageable current account deficit. The net foreign capital inflow to domestic financial markets in October-November 2019 was recorded at USD6.20 billion, increasing from USD4.85 billion in the third quarter of 2019. Meanwhile, Bank Indonesia expects the current account deficit to remain manageable despite totalling USD1.33 billion in November 2019 in line with current projections. Consequently, the current account deficit is predicted at 2.7% of GDP in 2019 and then at the manageable level of 2.5-3.0% of GDP in 2020.

The rupiah continues to appreciate, supported by improving BOP performance.  As of 18th December 2019, the rupiah strengthened by 0.93% (ptp) on the November 2019 level, thus appreciating 2.90% (ytd) since the beginning of the year. 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 less uncertainty in the global financial markets. Looking forward, Bank Indonesia predicts rupiah stability in line with the currency's fundamental value and maintained market mechanisms.

Low and stable inflation remains under control.  CPI inflation in November 2019 was recorded at 0.14% (mtm) or 3.00% (yoy), down from 3.13% (yoy) in October 2019.  Despite increasing compared with conditions in November 2019, Bank Indonesia predicts lower CPI inflation than the historical average in December 2019. Bank Indonesia projects low inflation to persist, thus bringing CPI inflation for the year to around 3.1% in 2019 before remaining under control in 2020 in the target corridor of 3.0%±1%. Moving forward, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the central and regional governments to control inflation within the target.
 
 

Indonesia Keeps Interest Rate Unchanged



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