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Indonesia Monetary Policy June 2023

Indonesia: Central Bank stands pat again in June

At its monetary policy meeting on 21–22 June, Bank Indonesia (BI) left the seven-day reverse repo rate unchanged at 5.75% for a fifth consecutive meeting. The decision met market expectations. The Bank also kept the deposit facility rate and the lending facility rate at 5.00% and 6.50%, respectively.

The Bank decided to stand pat amid declining inflation and in order to support the currency. BI deemed the current monetary policy stance consistent with keeping core inflation within its 2.0–4.0% target range in the remainder of 2023. Headline inflation fell to 4.0% in May from 4.3% in April, therefore moving within the Bank’s target range, thanks partly to positive base effects and declining commodity prices. Meanwhile, the Bank expects the economy to expand 4.5–5.3% this year, underpinned by strong household spending and investment activity, as well as a supportive trade sector.

Governor Perry Warjiyo stated that the BI would extend its “accommodative macroprudential policy stance”, suggesting that the Bank will keep the monetary policy stance unaltered in the meetings to come. Our panel also expects rates to remain close to their current levels this year.

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

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

“BI may only be able to consider an eventual pivot to rate cuts once pressure on the IDR dissipates while inflation stays subdued.

Thus, we believe any adjustment to BI’s policy stance will likely be dependent on the stability of the currency.”

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