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Indonesia Monetary Policy November 2021

Indonesia: Central Bank stands pat in November

At its 18–19 November monetary policy meeting, 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 February. The move was widely expected by market analysts.

The Bank’s decision was motivated by its commitment to support the ongoing recovery and the local currency, amid a moderate inflation environment and well-anchored inflation expectations. Inflation stood at 1.7% in October, while activity is expected to gain speed in Q4 alongside the lifting of restrictions. BI sees GDP growth at 5.7% this year and expects a similar outturn in 2022, while headline inflation is seen staying below the midpoint of the 2.0%–4.0% target range for the rest of this year, and remaining within that band in 2022.

Looking ahead, BI maintained its dovish tone in its communiqué, pledging to stick to a supportive monetary stance and reiterating its commitment to “maintaining macroeconomic and financial system stability, while supporting national economic recovery efforts”. All of our panelists expect the Bank to keep the rate at 3.50% at its final meeting of the year, scheduled for 15–16 December, while the majority see some tightening in 2022.

Commenting on the monetary policy outlook, Nicholas Mapa, senior economist at ING, said:

“Governor Warjiyo has indicated his preference for a “pro-growth stance” and he did just that today by leaving rates untouched. The currency has remained relatively resilient, even in the face of the Fed taper, suggesting that BI can bide its time and be patient with regard to its tightening cycle. We expect BI to remain on hold for the rest of the year and for at least the first half of 2022. With inflation expected to stay in check and growth likely to recover, we expect the decision point for the first BI rate hike will be the rupiah’s stability. Should IDR remain stable in early 2022, we could see BI retaining its current stance for at least the first half of next year.”


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