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Indonesia Monetary Policy September 2021

Indonesia: Central Bank stands pat in September

At its monetary policy meeting held on 20–21 September, 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 to stand pat was motivated by its commitment to support the local currency as well as the recovery, which is expected to have resumed following a slowdown in July amid spiking daily Covid-19 infections and the reintroduction of restrictions. Meanwhile, price pressures are limited, with inflation remaining below 2.0% in July–August, providing the Bank with room to maintain its accommodative stance. That said, BI expects the headline reading to return to and remain within the 2.0%–4.0% target range going forward.

Looking ahead, BI maintained its dovish tone in its communiqué, pledging to stick to a supportive monetary stance and reiterating its commitment to “maintain macroeconomic and financial system stability and support further economic improvement efforts”. All of our panelists see the seven-day reserve repo rate ending 2021 at 3.50%.

Regarding the outlook for monetary policy, Nicholas Mapa, senior economist at ING, commented:

“The recent Delta Covid-19 wave forced authorities to deploy mobility restrictions in July and part of August, weighing on overall growth momentum. With daily infections now more under control, the economy has gradually reopened with authorities hoping to get growth back on track. With inflation below the Central Bank’s 2.0%–4.0% target, we expect Governor Warjiyo to have all the necessary space to retain his “pro-growth” stance to support the recovery. We believe that BI will keep rates untouched for the balance of 2021 given the current inflation and growth situation.”

The next meeting is scheduled for 18–19 October.

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