Indonesia: Central Bank stands pat in June
June 18, 2021
At its monetary policy meeting held on 16–17 June, Bank Indonesia (BI) decided to leave the seven-day reverse repo rate at the all-time low of 3.50%, where it has been since its meeting in February. The move was widely expected by market analysts.
The Bank’s decision to hold its ground was supported by its commitment to sustain economic momentum amid elevated new Covid-19 infections, as well as by its expectations for inflation to remain under control and its determination to maintain exchange rate stability. Covid-19 cases have spiked recently, which could weigh on the recovery and therefore prevented the Bank from tightening its stance, while rate cuts were not considered due to underlying currency weakness.
Looking ahead, BI maintained its dovish tone in its communiqué, pledging to stick to a supportive monetary stance and reiterating its commitment to an “accommodative monetary and macroprudential policy mix”.
Commenting on the Bank’s strategy, Nicholas Mapa, senior economist at ING, stated:
“We expect the Central Bank to remain on hold in the near term. Still, Governor Warjiyo could consider a potential reversal in his current accommodative stance if his objective of FX stability comes under threat. The IDR has remained resilient for most of 2021, outside a few bouts of depreciation during episodes of uncertainty, and BI could extend its pause for as long as this trend holds. However, with the Fed taking on a hawkish slant [at its June meeting], we could foresee a potential reversal in stance by the Central Bank if the IDR comes under significant pressure for a protracted period of time.”