Indonesia: Bank Indonesia hikes rates in November
November 15, 2018
At its 14–15 November monetary policy meeting, Bank Indonesia (BI) surprised markets by increasing the seven-day reverse repo rate from 5.75% to 6.00%, marking the sixth rate hike so far this year. In addition, the Bank raised the deposit facility rate and lending facility rate to 5.25% and 6.75%, respectively.
The Bank’s decision to tighten its stance came after a larger-than-expected trade deficit in October and a further widening of the current account deficit in the third quarter on surging imports. Moreover, although the rupiah has gained ground so far in November, it is still down notably since the start of the year, and the recovery could be short-lived given the likelihood of further rate hikes by the U.S. Federal Reserve and Indonesia’s weak external position. By tightening monetary policy, the Bank hoped to temper the current account deficit and bolster the currency.
Bank Indonesia did not provide any explicit forward guidance in its communiqué. However, with the U.S. Federal Reserve set to raise interest rates several times over the next 12 months, Bank Indonesia will likely further tighten monetary policy going forward to protect the currency.
The next monetary policy meeting will be held on 19–20 December.
Indonesia Interest Rate Forecast
FocusEconomics Consensus Forecast panelists expect the seven-day reverse repo rate to end 2019 at 6.29% and 2020 at 6.00%.
Author: Oliver Reynolds, Economist