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Indonesia Monetary Policy March 2021

Indonesia: Central Bank stands pat in March; pledges to support rupiah

At its monetary policy meeting held on 17–18 March, Bank Indonesia (BI) decided to leave the seven-day reverse repo rate at the all-time low of 3.50%, following a rate cut at its previous meeting in February. In addition, the Bank pledged to support the local currency, which has weakened recently due to a rise in U.S. yields.

The Bank’s decision to stand pat reflected its commitment to fueling economic momentum. It was also influenced by currency concerns amid growing outflows, with limited room for further cuts. BI left its growth outlook unchanged, expecting the economy to expand 4.3%–5.3% this year.

Looking ahead, BI shifted the tone of its forward guidance this month, dropping its pledge to stick to an “accommodative stance” and stressing its commitment towards “accommodative macroprudential measures”.

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 despite inflation falling below the Bank’s 2-4% target as the currency is expected to remain pressured, with the Central Bank vowing to strengthen IDR stabilization efforts. Governor Warjiyo pledged support for the currency and remained confident the Indonesian rupiah would appreciate “in line with fundamentals” when financial flows normalise. With the Bank running out of room for more rate cuts for now, we expect it to push for non-policy measures to jumpstart slowing bank lending to help bolster the recovery.”

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