Indonesia: Bank Indonesia keeps rates unchanged again in October
October 15, 2015
At its 15 October monetary policy meeting, the Central Bank decided to hold the BI policy rate at 7.50%, as expected by the market. The Bank has made no changes to the policy rate since implementing a surprise 25-basis-point cut in February. The Bank stated that there is potential for a rate cut in the future, but decided to keep its policy rate unchanged for the time being amid ongoing concerns over currency stability. The Bank wants to avoid putting pressure on the rupiah with a rate cut just as the currency shows signs of recovering after a pronounced depreciation this past summer. The Bank also maintained the deposit facility rate at 5.50% and the lending facility rate at 8.00%.
Bank Indonesia expects economic growth to accelerate in the third quarter after a disappointing showing in the second quarter. Increased government spending and capital investment is expected to offset continued sluggishness in the private and external sectors. Further spending on infrastructure projects and implementation of structural reforms are projected to drive greater momentum going forward. The Bank added that the trade surplus continued to widen in September, due primarily to a decline in imports growth.
Regarding price developments, the Bank pointed out that inflation decreased from 7.2% in August to 6.8% in September, broadly reflecting abundant food supply as harvesting season begins as well as post-Ramadan price corrections. The Bank is still confident that its inflation target corridor of 4.0% plus or minus 1.0% for 2015 can be achieved.
The Bank emphasized that the rupiah rebounded in October after having depreciated drastically in September. The currency has recovered amid increased investor confidence after the government introduced a series of stimulus measures and thanks to the U.S. Federal Reserve’s decision to delay an interest rate hike. The Bank stated that it will continue to intervene in the foreign exchange market to defend the rupiah.
Author: Carl Kelly, Economist