Indonesia Monetary Policy May 2016


Bank Indonesia holds interest rates

At its 18-19 May monetary policy meeting, Bank Indonesia held the BI policy rate at 6.75%, as expected by a majority of market analysts. Accordingly, the Bank held the deposit facility rate and the lending facility rate at 4.75% and 7.25%, respectively. In addition, the Bank held the BI seven-day (reverse) repo rate, which will become the new benchmark for monetary policy on 19 August, at 5.50%.

The Central Bank outlined that the decision comes against a backdrop of macroeconomic stability. Inflation lies within the Bank’s target range of 4.0% plus/minus 1.0 percentage point and the current account deficit is improving. However, the Bank added that growth in Q1 was lower than expected due to weak government consumption and private investment. Although the Bank expects growth to accelerate in the coming quarters, the weak GDP figures for Q1 prompted Bank Indonesia to lower its GDP growth forecast for 2016 from 5.2-5.6% to 5.0-5.4%. Looking forward, the Bank hinted that cuts to the main interest rates could be in the cards as long as the macroeconomic environment remains stable.

FocusEconomics Consensus Forecast panelists expect the BI rate to average 6.63% at the end of 2016. For 2017, panelists expect the BI rate to end the year at 6.53.

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