Indonesia: Bank Indonesia keeps rates steady
June 15, 2017
At its 14 and 15 June monetary policy meeting, Bank Indonesia decided to hold the BI seven-day Reverse Repo rate at 4.75%. The decision met market expectations. The Bank also left the lending facility rate and the deposit facility rate unchanged at 5.50% and 4.00%, respectively
Bank of Indonesia’s decision to hold rates was motivated by improved growth prospects fueled by robust export performance, rising investment and strong household consumption. Strong foreign capital inflows and a deepening of Indonesia’s financial markets have kept the rupiah on a strong and stable path. Inflation is expected to remain within the Bank’s target range, despite upside risks from the effects of adjustments to administered prices, continued consolidation of corporations and banks, and volatile food prices during Ramadan. However, a further rate hike by the U.S. Federal Reserve has constrained the space for easing. Planned balance sheet reductions by the Federal Reserve and a potential decline in commodity prices are among the risks going forward.
The Bank provided little forward guidance, stating that stronger coordination between the Bank and central and local government policies should be continued to keep inflation on track amid volatile price increases. The majority of our panelists see the Bank holding rates steady throughout this year.
Author: Nihad Ahmed, Economist