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Indonesia Monetary Policy April 2023

Indonesia: Central Bank stands pat again in April

At its monetary policy meeting on 17–18 April, Bank Indonesia (BI) left the seven-day reverse repo rate unchanged at 5.75% for a third consecutive meeting. The decision met market expectations. The Bank also kept the deposit facility rate and the lending facility rates at 5.00% and 6.50%, respectively.

The Bank decided to stand pat due to declining inflation and a stabilizing currency. BI deemed previous hikes sufficient to anchor inflation expectations and bring core inflation within its 2.0–4.0% target range in 2023 and inflation within the same range sooner than expected. Meanwhile, the Bank expects the economy to expand 4.5–5.3% this year, supported by strong household spending and investment activity, as well as a supportive trade sector.

The Bank’s forward guidance suggests it will keep the current monetary policy setting until core inflation moves back within the target range. Our panel also expects rates to remain close to their current level this year.

Nicholas Mapa, senior economist at ING, commented on the outlook:

“Against this backdrop, our base case would be for [Bank Indonesia governor] Warjiyo to extend his pause until the third quarter before carrying out rate cuts to help support the ongoing economic recovery. However, should inflation slow at a more pronounced pace, the IDR maintain its stability and domestic growth prospects dim, we could see the BI bringing forward its rate cut timing to the late second quarter.”

The Bank’s next meeting is scheduled for 24–25 May.

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