Indonesia: Bank Indonesia maintains rates for fifth straight meeting
April 8, 2014
At its 8 April monetary policy meeting, the Central Bank decided to keep the BI policy rate at 7.50% for the fifth consecutive meeting. The decision matched market expectations. The Bank increased the BI policy rate by a cumulative 175 basis points between June and November of last year to counter inflation, the negative trade balance, and a weakening currency. This month's decision to keep rates unchanged comes amid lower inflation and a shrinking current account deficit. The Bank also left the deposit facility rate and the lending facility rate unchanged at 5.75% and 7.50% respectively.
Bank Indonesia reiterated its language from the previous meeting, stating that its decision is, “consistent with the tight monetary policy stance currently adopted in order to steer inflation back towards its target corridor of 4.5Â±1.0% in 2014 and 4.0Â±1.0% in 2015, as well as to reduce the current account deficit to a more sustainable level.” The Bank noted that inflationary pressures decreased in March, due in part to lower prices for foodstuffs as the harvesting season begins and boosts supply. The Bank is increasingly confident that inflation will hit its target corridor this year, but will, “keep close watch on a number of risks that could undermine this achievement.”
With respect to the external sector, the Bank emphasized that there has been, “improved performance.” The Bank explained that the trade balance returned to surplus in February, driven mainly by a large drop in imports. The Bank added that capital inflows were strong in March and led to further accumulation of international reserves. Going forward, the bank expects continued improvements in the external sector and foresees that the, “current account deficit will be managed at a level of below 3.0% of GDP.” Moreover, in terms of currency developments, the Bank noted that an improved economic environment has helped strengthen the rupiah exchange rate.
FocusEconomics Consensus Forecast panelists expect the BI rate to average 7.57% at the end of 2014. For 2015, panelists expect the BI rate to end the year at 7.28%.
Author: Carl Kelly, Economist