Indonesia Monetary Policy


Central Bank keeps interest rate unchanged at 5.75%

At its 8 March monetary policy meeting, the Central Bank left the benchmark interest rate unchanged at a record low 5.75%, in a move that was widely expected by the market. The Bank's decision followed a 25 basis-point interest rate cut in February. Bank Indonesia justified its decision by stating that the current level of policy interest rate is sufficient to support economic growth amid global headwinds. The Central Bank acknowledged that the Indonesian economy remains resilient and maintained its projection 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 the forthcoming reduction of government fuel subsidies scheduled for April. Bank Indonesia stressed, however, that despite the one-off shock to CPI, ?inflation will return to decrease in line with economic fundamentals?. Nevertheless, the monetary authorities undertook to be vigilant on price developments and to ?optimize various policies to minimize the temporary inflation impacts of government policy?. The Bank aims to keep inflation within its 4.5% 1% target in both 2012 and 2013.


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