Indonesia: Bank Indonesia holds policy rate at 7.25% in October
October 8, 2013
The Central Bank maintained the BI policy rate at 7.25% at its 8 October monetary policy meeting, a decision that was in line with market expectations. The BI policy rate currently stands at its highest level since May 2009, following a cumulative hike of 150 basis points over the past five months. The Bank also kept the deposit facility rate and the lending facility rate steady at 5.50% and 7.25% respectively.
Bank Indonesia had raised rates in previous months in an attempt to control inflation and defend a rapidly falling rupiah. This month's decision to maintain rates unchanged comes amid an ease in inflation in September and a surprising trade surplus in August, which took some pressure off the rupiah. The Central Bank asserted that the rupiah is now in line with foreign exchange market fundamentals and that, "confidence is beginning to recover." The Bank stated that inflationary pressures will continue to diminish and it expects its policy mix to be effective in directing 2014 inflation toward the target of 4.5% (plus/minus 1.0%). The Bank also foresees continued sluggishness in the domestic economy fueled in part by developments at the global level.
FocusEconomics Consensus Forecast panelists expect the BI rate to average 6.59% by the end of 2013. For 2014, panelists expect the BI rate to remain virtually unchanged, ending the year at 6.50%.
Author: Carl Kelly, Economist