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Indonesia Monetary Policy March 2023

Indonesia: Central Bank stands pat in March; announces continued intervention in FX markets

At its monetary policy meeting on 15–16 March, Bank Indonesia (BI) kept the seven-day reverse repo rate unchanged at 5.75% for a second consecutive meeting. The decision matched market expectations. The Bank also kept the deposit facility rate and the 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. At the same time, Governor Perry Warjiyo stated that the Bank has and will continue to intervene in the FX market to reduce volatility caused by the closure of some U.S. banks and problems at Credit Suisse. In particular, BI is managing export proceeds in order to support the rupiah and control imported inflation. In order to reassure markets, Warjiyo added that BI’s stress tests on local banks showed low non-performing loan and high capital adequacy ratios.

The Bank’s forward guidance suggested 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:

“We believe any future policy decisions will take direction from the stability of the Indonesian rupiah (IDR), which remains pressured during bouts of uncertainty.”

The Bank is expected to meet on 18–19 April.

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