Interest Rate in Indonesia

Indonesia Interest Rate

Central Bank stands pat again in July

At its monetary policy meeting on 24–25 July, Bank Indonesia (BI) left the seven-day reverse repo rate unchanged at 5.75% for the seventh sixth consecutive meeting. The decision met market expectations. The Bank also kept the deposit facility and lending facility rates at 5.00% and 6.50%, respectively.

The Bank decided to stand pat amid falling inflation and in order to support the currency. BI deemed the current monetary policy stance consistent with keeping inflation within its 2.0–4.0% target range for the remainder of 2023. Headline inflation fell to 3.5% in June from 4.0% in May, therefore moving closer to the midpoint of the Bank’s target range, partly due to a positive base effect, declining commodity prices and anchored inflation expectations. Meanwhile, the Bank expects the economy to expand 4.5–5.3% this year, underpinned by upbeat household spending and investment activity, as well as a supportive trade sector.

The press release didn’t provide explicit forward guidance, which suggests that the Bank will not alter its monetary policy stance in the meetings to come. Our panel expects rates to remain close to their current level this year.

The Bank’s next meeting is scheduled for 23–24 August.

Nicholas Mapa, senior economist at ING, commented on the outlook:

“Governor Warjiyo said he expects the Fed to possibly hike rates in July and September, after which he expects Fed rates to ‘stabilise’. We doubt BI will resort to additional tightening just yet and believe the Bank will likely be on hold for at least two more meetings. Any decision to cut rates will likely be tied to IDR stability, and we expect Governor Warjiyo to be very open to rate cuts by October.”