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Indonesia Monetary Policy August 2023

Indonesia: Central Bank stands pat again in August

At its monetary policy meeting on 23–24 August, Bank Indonesia (BI) left the seven-day reverse repo rate unchanged at 5.75% for the seventh consecutive meeting. The decision met market expectations. The Bank kept the deposit facility and lending facility rates at 5.00% and 6.50%, respectively.

The Bank decided to stand pat largely to support the currency. The Bank deemed the current monetary policy stance to be consistent with keeping inflation within its 2.0–4.0% target range for the remainder of 2023 and within its 1.5–3.5% target range for 2024. Headline inflation fell to 3.1% in July from 3.5% in June, therefore moving closer to the midpoint of the Bank’s target range, partly due to moderate demand, low imported inflation and anchored inflation expectations. Meanwhile, the Bank expects the economy to expand 4.5–5.3% this year.

The press release didn’t provide explicit forward guidance, which suggests that the Bank will not alter its monetary policy stance in the meetings to come. Our panel expects rates to remain close to their current level this year.

The Bank’s next meeting is scheduled for 20–21 September.

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

“BI held rates unchanged today with an eye to FX stability. A much tighter interest rate differential (25bp) with the Fed’s policy rate and a fading trade surplus has resulted in pressure on the IDR. Thus, despite a much more favourable inflation environment, BI has been unable to cut policy rates from its current 5.75%.”

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