Indonesia: Bank Indonesia stays put
March 16, 2017
At its 15 and 16 March monetary policy meeting, Bank Indonesia decided to hold the BI seven-day Reverse Repo rate at 4.75%. The decision was widely expected by market analysts after the Bank had made several rate cuts in 2016. In addition, the Bank decided to hold the lending facility rate and the deposit facility rate at 5.50% and 4.00%, respectively.
Bank Indonesia’s unchanged stance is due to improving macroeconomic prospects and risks to the inflation outlook. Exports and higher public spending should support the economy this year and the Bank sees GDP expanding a healthy 5.0% to 5.4%. In addition, tightening financial conditions in the U.S. along with changes in administered prices and higher global inflation are acting as upside risks to Indonesia’s inflation outlook and have reduced space for easing.
The Bank provided little forward guidance, stating that it will focus on keeping inflation within its target of 4.0% plus or minus 1.0 percentage point. Almost half of our panelists see the Bank holding rates steady throughout this year.