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Indonesia Monetary Policy February 2018

Indonesia: Bank Indonesia holds rates steady in February

At its 14 and 15 February monetary policy meeting, Bank Indonesia decided to make no changes to interest rates, holding the BI seven-day Reverse Repo rate at 4.25%. The decision met market analysts’ expectations. Accordingly, the Bank also decided to keep the lending facility rate unchanged at 5.00% and the deposit facility rate stable at 3.50%. The Bank ended a long easing cycle in October 2017 and considers the current level appropriate given the macroeconomic backdrop.

The Bank’s stance reflects an improving economy, which has reduced the need for further easing. Growth rose a notch in the final quarter of 2017, and the Bank commented in its accompanying statement that activity has become more broad-based in recent months. It sees GDP growing between 5.1% and 5.5% this year. On top of an improving economic picture, the Bank’s decision to stay put was also likely in part motivated by a need to preserve stability in the rupiah. In February, the Bank intervened in the currency market after the rupiah fell to the lowest level since June 2016, amid a global selloff in financial markets.

The statement suggested that the Bank views its previous easing as sufficient to support the domestic economy, hinting that a period of unchanged interest rates is likely in the cards. That said, the Bank emphasized that it will continue to monitor risks to the economy and work to optimize monetary policy going forward.

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