Indonesia Monetary Policy December 2017

Indonesia

Indonesia: BI keeps rates unchanged in December

December 14, 2017

At its 13 and 14 December monetary policy meeting, Bank Indonesia decided to make no changes to its monetary policy, holding the BI seven-day Reverse Repo rate unchanged at 4.25%. The decision met market analysts’ expectations. After two surprise rate cuts in Q3, the Bank paused its easing cycle at the previous meeting in October. Accordingly, at its most recent meeting 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 unchanged stance was due to a brighter global and domestic growth outlook, along with rising U.S. interest rates, which have eroded room to lower the policy rate further. In the accompanying statement, the Bank emphasized that it believes the previous easing of monetary policy was sufficient to encourage the country’s recovery. It also struck a positive tone regarding the global growth picture. In addition, the Bank stated that it will remain vigilant of the risks associated with rising interest rates in several advanced economies. Some analysts have been critical of the Bank’s accommodative stance, as higher interest rates in the U.S. could spark capital outflows from Indonesia, threatening asset stability.

The statement was devoid of clear forward guidance, but most analysts forecast a period of unchanged interest rates ahead.

FocusEconomics analysts expect the BI seven-day Reverse Repo rate to end 2018 at 4.42%. In 2019, our panel sees the rate ending the year at 4.57%.


Author: Angela Bouzanis, Senior Economist

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Indonesia Monetary Policy Chart


Indonesia Monetary Policy December 2017

Note: BI seven-day Reverse Repo rate in %.
Source: Bank Indonesia (BI).


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