Indonesia: BI holds rates steady in March
At its monetary policy meeting held on 21 and 22 March, Bank Indonesia decided to make no changes to interest rates, holding the BI seven-day Reverse Repo rate at 4.25%. The decision met market analysts’ expectations. Accordingly, the Bank also decided to keep the lending facility rate unchanged at 5.00% and the deposit facility rate stable at 3.50%.
The Bank’s stance represents a balance between two different objectives: helping boost economic activity and ensuring currency stability. Moreover, the economy is performing well, which has reduced the need for further easing; the Bank ended a long easing cycle in October 2017. Growth gained some steam in Q4 2017, and the Bank expects it to strengthen further this year. It sees GDP expanding between 5.1% and 5.5% in 2018.
Soaring imports in the first two months of 2018 suggest domestic demand had a strong start to the year. Exports also regained strength after a weak Q4, mirroring the solid trade performance seen in the region. However, the trade balance registered a deficit for the third consecutive month in February, which, together with the Fed’s tightening stance, continued to put downward pressure on the rupiah. This prompted the Bank to intervene in the currency market through exchange rate stabilization measures, which it intends to continue doing.
The accompanying statement suggested that the Bank considers its current stance as conducive to macroeconomic and financial stability, and at the same time adequate to ensuring solid economic growth. Therefore, a period of unchanged interest rates is likely. That said, the Bank emphasized that it will continue to monitor risks to the economy and work to optimize the mix of monetary, macroprudential and payment system policies going forward.