Indonesia Monetary Policy March 2016


Indonesia: Bank Indonesia cuts policy rate for a third consecutive time

March 17, 2016

At its 17 March monetary policy meeting, the Central Bank decided to cut the BI policy rate from 7.00% to 6.75%, as expected by a majority of market analysts. The move marks the third consecutive cut to the policy rate as the Bank tries to support economic growth. The Bank also cut the deposit facility rate and the lending facility rate by 25 basis points each, to 4.75% and 7.25%, respectively.

Bank Indonesia stated that the decision to lower the policy rate is designed to boost domestic demand and the economy’s momentum. The Bank emphasized that it will continue to work with the government to contain inflation and stimulate the economy as well as that it will be cautious in deciding on whether to conduct future monetary policy easing. Regarding growth, the Bank added that uncertainty in global financial markets has eased, although growth is expected to be sluggish this year and next. Weaker than expected growth has led to loose global monetary policies, particularly in Japan and Europe. While the Bank does not expect the U.S. Federal Reserves to hike rates until the second half of this year. In Indonesia, the Bank stated that fiscal stimulus may boost growth in the first quarter. However, export revenues will continue to be weighed on by low commodity prices and subdued global economy.

Regarding price developments, the Bank pointed out that inflation was contained in February and prices are evolving in line with the Bank’s goals. Meanwhile, the Bank emphasized that the low oil price will likely alleviate inflationary pressures going forward. The Bank stated that it will coordinate policy with the government to control price pressures.

FocusEconomics Consensus Forecast panelists expect the BI rate to average 6.73% at the end of 2016. For 2017, panelists expect the BI rate to end the year at 6.60%.

Author: Angela Bouzanis, Lead Economist

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