Indonesia: Central Bank stands pat in February; signals end of tightening cycle
At its monetary policy meeting on 15–16 February, Bank Indonesia (BI) kept the seven-day reverse repo rate unchanged at 5.75%, marking the end of its tightening cycle. The Bank also kept the deposit facility rate and lending facility rate unchanged at 5.00% and 6.50%, respectively.
The Bank decided to stand pat as it deemed previous hikes sufficient to anchor inflation expectations and bring inflation within its 2.0–4.0% target range. Meanwhile, it stated that it is managing export proceeds in order to support the rupiah and control imported inflation. The Bank expects core inflation to move within the target range of 3.0–4.0% in H1 2023, while headline inflation should return to the target in H2 2023.
The Bank’s forward guidance was muted, suggesting it will keep the current monetary policy setting unchanged for the time being until core inflation moves back within the target. Our panel also expects rates to remain close to their current level this year.
Nicholas Mapa, senior economist at ING, commented on the outlook:
“BI indicated that it is coordinating with government officials on the planned regulation for exporter earnings which may have lowered the need to utilise rate increases to steady the IDR. […] We believe BI can opt to stay dovish in the near term should inflation sustain its downward path and IDR remain stable.”
The Bank is expected to meet on 15–16 March.