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Indonesia Monetary Policy July 2018

Indonesia: Bank Indonesia stands pat in July after three consecutive rate hikes

At its 18 and 19 July monetary policy meeting, Bank Indonesia (BI) decided to make no changes to interest rates, holding the BI seven-day reverse repo rate at 5.25%. The decision, which met market analysts’ expectations, followed three rate hikes in May and June. Accordingly, the Bank also decided to keep the lending facility rate unchanged at 6.00% and the deposit facility rate stable at 4.50%.

The Central Bank decided to leave interest rates unchanged after monetary tightening in May and June helped stabilize the currency. The Bank intervened forcefully as the rupiah was among the hardest-hit emerging market currencies in the selloff that occurred in Q2. However, since the last rate hike on 29 June, the currency has stabilized. The sharp depreciation in the second quarter was a response to high ownership of government bonds by foreign investors, the persistent current account deficit and elevated prices for fuel imports. The BI stated that global financial uncertainty remains high due to escalating US-China trade tensions and the current monetary stance is helping restore market confidence without hurting economic growth.

The Bank was clear in its commitment to maintaining FX and economic stability, stating that it “will continue to monitor the global and domestic economic developments and outlook in order to strengthen policy mix response in maintaining domestic financial market attractiveness”. This implies that further rate hikes to stem capital outflows and ensure the stability of the rupiah are on the table if necessary.

The next monetary policy meeting will be held on 15 and 16 August.

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