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Indonesia Monetary Policy April

Indonesia: Bank Indonesia leaves rates unchanged in April, announces further measures to support the economy

At its 24-25 April monetary policy meeting, Bank Indonesia (BI) left the seven-day reverse repo rate at 6.00% for the fifth consecutive meeting, in line with market expectations. In addition, the Bank left the deposit facility rate and lending facility rate at 5.25% and 6.75%, respectively. The Bank also announced further macroprudential measures to boost liquidity and stimulate domestic demand.

The Bank’s decision to stay put came against the backdrop of a stronger external sector; in Q1, international reserves rose and the current account deficit appeared to narrow, while the rupiah is up somewhat against the dollar since the start of the year, supported by reduced international uncertainty and the U.S. Federal Reserve’s shift to a more dovish monetary stance. Moreover, on the domestic front, price pressures are subdued amid weak food price inflation; as a result, neither external nor internal factors compelled the Bank to tighten its stance. At the same time, economic activity is robust, while premature policy loosening could have renewed downward pressure on the rupiah, meaning an interest rate cut was not warranted either.

Bank Indonesia did not provide any explicit forward guidance in its communiqué. Given low inflation and more accommodative global monetary policy, some panelists expect a rate cut later this year, although the Consensus is for rates to remain fairly stable going forward.

The next monetary policy meeting will be held on 15-16 May.

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