Indonesia: Bank Indonesia cuts policy rate in February in attempt to boost struggling economy
February 18, 2016
At its 18 February monetary policy meeting, the Central Bank decided to cut the BI policy rate from 7.25% to 7.00%, as expected by a majority of market analysts. The move marks the second 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 5.00% and 7.50%, respectively. In addition, the Bank reduced the rupiah denominated primary reserve requirement effective 16 March.
Bank Indonesia stated that the dual decision to lower the policy rate and the primary reserve requirement should aid in boosting economic growth. The Bank emphasized that it will continue to work with the Government to contain inflation and stimulate the economy, while maintaining macroeconomic stability. Regarding growth, the Bank added that the global economic recovery is likely to remain weak, while Indonesia’s economy accelerated in the second half of last year on the back of government spending. Looking forward, the Bank sees the economy picking up in 2016 supported by fiscal stimuli as well as private investment following recent government deregulation.
Regarding price developments, the Bank pointed out that inflation fell in January, and prices are evolving inline with the Bank’s goals. Meanwhile, the Bank emphasized that the rupiah was stable and appreciated slightly on the back of foreign capital inflows as well as lower global uncertainty. The Bank reiterated that it will focus on maintaining exchange rate stability in line with the currency’s value.
Author: Carl Kelly, Economist