Indonesia: Bank Indonesia unexpectedly raises policy rate to 7.50%
November 12, 2013
At its 12 November monetary policy meeting, the Central Bank decided to raise the BI policy rate by 25 basis points to 7.50%. The move came as a surprise to the market, which had expected no change. The BI policy rate currently stands at its highest level since April 2009, following a cumulative hike of 175 basis points over the past six months. The Bank also hiked the deposit facility rate and the lending facility rate by 25 basis points each, pushing them to 5.75% and 7.25% respectively.
Bank Indonesia has raised rates in previous months in an attempt to control inflation and defend a rapidly falling rupiah. The Central Bank asserted that the rupiah is now stabilizing and is better aligned with foreign exchange market fundamentals. The Bank also emphasized that inflation pressures eased in October and that inflation is expected to continue diminishing. This month's decision to raise rates comes amid growing concerns over a, "persistently large current account deficit." The Bank explained that higher rates are being introduced, "in order to ensure that the current account deficit is reduced to a more sound level."
FocusEconomics Consensus Forecast panelists expect the BI rate to average 6.59% by the end of 2013. For 2014, panelists expect the BI rate to remain virtually unchanged, ending the year at 6.50%.
Author: Carl Kelly, Economist