Indonesia Monetary Policy December 2016


Indonesia: Bank Indonesia holds interest rates following Federal Reserve hike

December 15, 2016

At its 14–15 December monetary policy meeting, Bank Indonesia decided to hold the BI seven-day Reverse Repo rate (BI seven-day RR rate) at 4.75%. The decision was widely anticipated by market analysts. In addition, the Bank decided to hold the lending facility rate and the deposit facility rate at 5.50% and 4.00%, respectively.

The Central Bank’s unchanged policy follows several rate cuts earlier this year to boost growth, which has been hit by weak external demand and low prices for commodities. In addition, the recent hike in U.S. interest rates along with a rise in global uncertainty has increased capital outflows from emerging markets and likely factored in to the Bank’s decision. The Bank commented that, “[it] will continue to monitor the risk of a sudden capital reversal linked to the ambiguous US policy direction and implement exchange rate stabilisation measures in line with the rupiah’s fundamental value by maintaining market mechanisms.”

Looking forward, the Bank’s forward guidance pointed to a period of unchanged interest rates. The Bank stated that, “[it] believes that the previous monetary and macroprudential policy easing will continue to boost domestic growth momentum.”

Against this backdrop, a number of panelists see no change to the BI seven-day RR rate in 2017, however some have divergent views and the average forecast is of 4.67% at the end of the year. For 2018, panelists expect the BI rate to end the year at 4.80%.

Author: Angela Bouzanis, Senior Economist

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