Indonesia Monetary Policy February 2017

Indonesia

Indonesia: Bank Indonesia holds interest rates in February as Fed hike approaches

February 16, 2017

At its 14 and 16 February monetary policy meeting, Bank Indonesia decided to hold the BI seven-day Reverse Repo rate at 4.75%. The decision was widely expected by market analysts after the Bank had made several rate cuts in 2016. In addition, the Bank decided to hold the lending facility rate and the deposit facility rate at 5.50% and 4.00%, respectively.

Bank Indonesia’s unchanged stance is due to both reduced need for and less room for monetary policy easing. The Bank eased financial conditions repeatedly last year and economic activity in the final quarter was healthy, and has a favorable outlook going forward. Further, the Bank noted heightened global uncertainty as a result of potential U.S. protectionism, a “hard Brexit” in the UK and simmering European political risks. The prospect of further monetary normalization by the U.S. Federal Reserve is putting pressure on emerging market currencies and has reduced space for the Bank to loosen monetary policy conditions.

The Bank provided little forward guidance, stating that future decisions will depend on the trajectory of inflation and the ongoing economic recovery. Almost half of our panelists see the Bank holding rates steady while waiting for external developments to unfold.

While a number of panelists see no change to the BI seven-day Reverse Repo rate in 2017, some have divergent views and the average forecast is for 4.67% at the end of the year. For 2018, panelists expect the BI rate to end the year at 4.80%.


Author:, Economist

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Indonesia Monetary Policy February 2017

Note: BI seven-day Reverse Repo rate in %.
Source: Bank Indonesia (BI).


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