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Indonesia Monetary Policy January 2023


Bank Indonesia (BI) held the BI-Rate at 6.00% at its 16–17 January meeting, where the rate has been since October 2023. The Bank also left the deposit facility and lending facility rates unchanged at 5.25% and 6.75%, respectively. January’s decision matched market expectations.

BI stood pat to continue supporting the rupiah and to ensure inflation remains within its 1.5–3.5% target band in 2024. The Bank also maintained its interventions in currency markets to shore up the IDR and accelerate the digitalization of payment systems. The Bank also stated it would maintain an accommodative policy mix to encourage domestic growth and offset potential downward pressures on the economy from the still-tight monetary stance, including through measures boosting lending to households and the private sector.

January’s communiqué did not include explicit forward guidance. Nevertheless, the Bank stated it will continue monitoring global risks that could destabilize inflation or the economy, including geopolitical conflict, economic malaise in China and the pace of monetary policy loosening in the U.S. Going forward, the strength of the rupiah, the impact of the El Niño weather event on food inflation and interest rate differentials with the U.S. Fed will influence the Bank’s decisions. The Consensus is for BI to lower rates by about 75 basis points by end-2024, with the majority of our panelists anticipating the first cuts in Q3 2024. The next meeting is scheduled for 20–21 February.

ING analyst Nicholas Mapa sees the monetary policy easing cycle kicking off in H2:

“With the IDR still under pressure and inflation slightly above the central bank’s inflation target midpoint, we believe Bank Indonesia will keep rates at 6% for the first half of the year but will likely shift to accommodation once the Fed starts cutting policy rates.”

In contrast, UOB analysts Enrico Tanuwidjaja and Agus Santoso expect the BI to extend its pause through end-2024:

“We still maintain our forecast for the BI rate to stay at 6% throughout 2024. […] We price in a potential BI rate cut this year should domestic demand growth be lower than expected. We see several indicators including income and consumption levels showing slower growth and have not fully returned to pre-pandemic levels.”

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