Indonesia: Bank Indonesia raises policy rate to 6.50% in July
July 11, 2013
At its 11 July monetary policy meeting, the Central Bank raised its BI rate by 50 basis points to 6.50%, following the hike of 25 basis points in June. The decision surprised the market, which had expected the Bank to increase interest rates by a more moderate 25 basis points. The policymakers also raised the deposit facility rate by 50 basis points to 4.75%, while they left the lending facility rate at 6.75%.
Bank Indonesia's move aims to, "ensure that inflation will return to its target path after the fuel price hike." However, the Central Bank predicts that, "the impact of higher fuel prices will be temporary," and inflation should moderate back to normal by September 2013. In addition, the Bank tried to support the weakening rupiah (IDR) by, "providing adequate liquidity in the foreign exchange market." The currency has recently weakened to the lowest level since August 2009.
FocusEconomics Consensus Forecast panellists see the BI rate at 6.23% by the end of 2013. For 2014, panellists expect the BI rate to remain virtually unchanged, ending the year at 6.25%.