Indonesia: Bank Indonesia maintains rates as current account deficit narrows and rupiah stabilizes
January 9, 2014
At its 9 January monetary policy meeting, the Central Bank decided to keep the BI policy rate at 7.50% for the second consecutive meeting. The decision matched market expectations. The BI policy rate currently stands at its highest level since April 2009 after having increased by a cumulative 175 basis points over the course of the past eight months. This month's decision to keep rates unchanged comes amid ongoing economic improvements, including stabilized inflation and a growing trade surplus. The Bank also kept the deposit facility rate and the lending facility rate unchanged at 5.75% and 7.25% respectively.
Bank Indonesia stated that its policy decision is, "consistent with ongoing efforts to bring inflation back towards the target corridor of 4.5±1% in 2014 and 4±1% in 2015, as well as to help manage economic consolidation and thereby reduce the current account deficit to a level considered more sound." The Bank noted that the significant inflationary pressures that were experienced during 2013 have been brought under control. Moreover, the increase in non-oil exports that is occurring as the global economy rebounds is driving a growing trade surplus and helping to moderate the current account. The Bank also recognized that the rupiah is continuing to stabilize following a turbulent 2013.
FocusEconomics Consensus Forecast panelists expect the BI rate to average 7.45% by the end of 2014. For 2015, panelists expect the BI rate to remain virtually unchanged, ending the year at 7.01%.
Author: Carl Kelly, Economist