Indonesia: Bank Indonesia hikes policy rate to 6.00 percent in a surprising move
June 13, 2013
At its 13 June monetary policy meeting, the Central Bank raised its BI rate by 25 basis points to 6.00% after having stayed put since February 2012. The decision surprised the market, which had expected the Bank to leave interest rates unchanged. The deposit facility and lending facility rates were left at 4.25% and 6.75%, respectively.
Bank Indonesia's move aims to tackle inflation as well as to support the weakening rupiah (IDR). The Bank stated that economic growth at home is "biased downward" amid a weak external environment, the recession in the Euro area as well as a slowdown in China's economic growth. On the external side, monetary authorities expect an improvement in the current account deficit, thanks to a surplus in the capital and financial account. Regarding the rupiah, the Bank stressed that the currency remains under pressure as the IDR continues to weaken against the USD and is currently trading at its lowest level since September 2009. Regarding price developments, the Central Bank stated that it expects an increase in inflation expectations as a result of the government's potential USD 20 billion cut in fuel subsidies.
FocusEconomics Consensus Forecast panellists see the BI rate at 6.06% by the end of 2013. For 2014, panellists expect the BI rate to rise to 6.21%.