Indonesia Leaves Monetary Policy Unchanged


Bank Indonesia kept its bencmark 7-day reverse repo rate at 6 percent on 20th December 2018, after hiking rates in the previous month, and matching market expectations. Policy makers said the decision to pause the tightening was consistent with efforts to reduce the current account gap to a more healthy limit of around 2.5% of GDP in 2019, maintaining the attractiveness of domestic financial market for foreign investors, and anticipating an increase on global interest rate in the upcoming months. The lending and the deposit facility rates were also left steady at 6.75 percent and 5.25 percent respectively.

Excerpts from the Bank Indonesia Press Release:

National economic growth remains solid on the back of domestic demand. The latest economic indicators point to strong private consumption, backed by maintained public purchasing power and consumer confidence as well as preparations for the elections to be contested in 2019. Investment continues to grow, supported by government infrastructure projects, contrasting slower growth of nonbuilding investment due to the developments unfolding in the manufacturing and mining sectors. Meanwhile, net exports remain negative after export growth decelerated in line with retreating global demand and falling international commodity prices, while imports remained high to satisfy strong domestic demand. Looking ahead, Bank Indonesia projects national economic growth in the 5.0-5.4% range in 2019, buoyed by domestic demand and improvements in terms of net exports.

Indonesia’s trade balance recorded a deficit in November 2018 as a corollary of global dynamics less conducive to growth. The trade deficit stood at USD2.05 billion in the reporting period due to declining export performance on flat global economic growth and sliding prices for Indonesian export commodities. In contrast, imports growth begin slowing down as the government implement import management policy, albeit remain high to meet demand for productive activities, namely investment. Non-resident capital flowing into the domestic financial markets in November 2018 totalled approximately USD7.9 billion, finding its way to all assets, including the stock market and corporate global bonds. The position of reserve assets at the end of November 2018 remained solid at USD117.2 billion, equivalent to 6.5 months of imports or 6.3 months of imports and servicing government external debt, which is well above the international standard of three months. Bank Indonesia will continue to strengthen coordination with the Government to bolster external sector resilience, including the trade balance, thus reducing the current account deficit to around 2.5% of GDP in 2019.

The Rupiah moved consistently with prevailing market mechanisms, thereby supporting external sector rebalancing. Point to point, the Rupiah appreciated 6.29% in November 2018 as an influx of foreign capital flowed back into Indonesia as a result of solid domestic economic fundamentals and a slight thawing of trade tensions between the United States and China. In December 2018, the Rupiah was hit by another wave of depreciatory pressures as global economic uncertainty increased and seasonal demand for foreign exchange ticked upwards towards yearend. Bank Indonesia will remain vigilant of global financial market uncertainty and continue to implement exchange rate stabilisation measures in line with the currency’s fundamental value, while maintaining market mechanisms, backed by financial market deepening efforts.

Inflation is low and stable within the 3.5±1% target corridor for 2018. CPI inflation stood at 0.27% (mtm) in November 2018, or 3.23% (yoy), relatively unchanged from the 0.28% (mtm) and 3.16% (yoy) recorded the month earlier. Inflation was kept under control with the help of minimal core inflation pressures, relatively stable at 3.03% (yoy) in the reporting period. Moving forward, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the Central Government and Local Administrations to maintain low and stable inflation, which is projected within the inflation target of 3.5±1% in 2019.
 

Indonesia Leaves Monetary Policy Unchanged


Bank Indonesia l Chusnul Ch Manan| chusnul@tradingeconomics.com
12/20/2018 9:37:36 AM