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Indonesia Monetary Policy January 2018

Indonesia: Bank Indonesia keeps rates on hold in January

At its 17 and 18 January monetary policy meeting, Bank Indonesia decided to make no changes to interest rates, holding the BI seven-day Reverse Repo rate unchanged 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 an aggressive easing cycle in October and has held interest rates stable since. Along with the monetary policy decision, the Bank announced several tweaks to its policies, including easing certain reserve limits for lenders to stoke economic growth and improve transmission of monetary policy.

Overall, the Bank’s stance reflects a brightening outlook for Indonesia, alongside moderate price pressures. In the accompanying statement, the Bank commented that it sees the economy picking up in 2018, thanks to vibrant export growth amid high commodity prices and a healthy global backdrop. The Bank sees GDP growing between 5.1% and 5.5% this year. In addition, the Bank commented that it sees inflation remaining within its target range of 3.5% plus or minus 1.0 percentage point. However, it took a cautious view and stated there are several risks to the growth and inflation outlook, including monetary policy normalization in advanced economies, geopolitical tensions and domestic corporate consolidation. The Bank emphasized it would continue to monitor these risks and that the current monetary policy stance is appropriate to keep inflation within its target range.

The statement was devoid of clear forward guidance, but most analysts forecast a period of unchanged interest rates ahead. Commenting on Nomura’s outlook, analysts Euben Paracuelles and Brian Tan stated that:

“We continue to expect BI to keep its policy rate unchanged through 2018 as it will likely remain focused on external risks. We expect GDP growth to improve to 5.6% in 2018 from 5.2% in 2017, which should reduce the need for further easing. CPI inflation is also turning less benign and should rise to 4.2% in 2018 after rising to 3.6% y-o-y in December from 3.3% in November, led by food prices.”

Indonesia Interest Rate Forecast

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