Indonesia Monetary Policy


Central Bank maintains interest rate at 6.00%

At its 12 January monetary policy meeting, the Central Bank kept the benchmark interest rate at a record low of 6.00% for a second month in a row. The decision was in line with market expectations. The Bank stated that ?the global economic and financial performance is still weakening along with the protracted crisis in Europe? and predicts that it will lead to a ?decrease in emerging markets' exports?. Nevertheless, monetary authorities expect the resilient growth seen recently in Indonesia to continue throughout 2012, and to settle within its 6.3%-6.7% forecast. They also estimate that overall economic growth in 2011 reached a robust 6.5%. Moreover, the Bank stated that the ?current BI rate is still consistent with inflation targets, financial system stability, and remains conducive to propel domestic economic expansion amidst global economic uncertainty.? Currently, the inflation target for both 2012 and 2013 is 4.5% 1%. However, upside risks to inflation remain, particularly stemming from the continued weakening of the rupiah, as well as the forthcoming limitation of fuel price subsidies by the government in April. More recently, on 17 January, Bank Indonesia widened the lower range of its interbank lending rate from 150 basis points to 200 basis points, which aims at providing more liquidity to the market. The move is interpreted by the analysts as a de facto easing of its monetary policy.


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