Indonesia Monetary Policy October 2016


Indonesia: Bank Indonesia cuts interest rates

October 20, 2016

At its 19–20 October monetary policy meeting, Bank Indonesia decided to cut the BI seven-day Reverse Repo rate (BI seven-day RR rate) from 5.00% to 4.75%. The move surprised market analysts who had not expected a change in rates. In addition, the Bank decided to cut the lending facility rate and the deposit facility rate by 25 basis points each to 5.50% and 4.00%, respectively. The Central Bank has cut rates six times this year to boost the economy, which has been hit by weak external demand and low prices for commodities.

In the accompanying statement, the Bank pointed out that inflation should fall near to the floor of its target corridor this year, which, combined with a contained current account deficit and the relative stability in the rupiah, has opened up space to ease monetary conditions. Growth is likely to have slowed in Q3 as government stimulus lost steam and the Bank now sees growth for 2016 coming in at the lower end of its forecast of 4.9% to 5.3%.

The statement was devoid of strong forward guidance, although officials stated to the media that there was room to lower rates further. In addition, the Bank emphasized that, “[it] will continue to coordinate with the government to ensure that inflation control, growth stimulus strengthening, and implementation of structural reform, are well underway to support sustainable economic growth.”

FocusEconomics Consensus Forecast panelists are still talking the latest developments into account and expect the BI rate to average 4.82% at the end of 2016. For 2017, panelists expect the BI rate to end the year at 4.72%.

Author: Angela Bouzanis, Senior Economist

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Indonesia Monetary Policy Chart

Indonesia Monetary Policy October 2016

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

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