Indonesia Monetary Policy


Central Bank cuts interest rate to 5.75%

At its 9 February monetary policy meeting, the Central Bank reduced the benchmark interest rate by 25 basis points to 5.75%, a new record low. The decision contrasted market expectations, which had the Central Bank keeping rates on hold at 6.00%. The Bank's decision aims at boosting the domestic economy amid a challenging global economic environment, as slowing inflation has given monetary authorities some leeway to loosen their monetary policy. That said, the Central Bank acknowledged that the Indonesian economy remains resilient and maintained their estimates for 2012 GDP growth to settle within its 6.3%-6.7% forecast range. Although inflation has been contained for now, upside risks remain, mainly stemming from rising food prices and the forthcoming reduction of fuel subsidies by the government in April. Bank Indonesia stressed, however, that it will be ?vigilant on the impacts of Government policy on energy that may increase pressure on inflation?. The Bank aims to keep inflation within its 4.5% 1% target in both 2012 and 2013.


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