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Indonesia keeps BI rate unchanged at 5¾%; inflation under control
By Toni Weeks
San Diego, April 12 - Bank Indonesia announced that its board of governors decided at a meeting on Thursday to maintain the BI rate at 5¾%.
The board said that the current BI rate is still consistent with inflation pressures emanating from economic fundamentals, which are expected to stay steady.
Globally, inflation is still subdued, but an increase in global commodity prices, specifically for oil, has increased inflation pressure that can lead to tight bias monetary policy in emerging market countries. Under such uncertain conditions, capital flow volatility to emerging markets, including Indonesia, is expected to continue.
The bank summed up inflation as being under control, although there is a risk of high inflationary pressures going forward. Year-over-year CPI inflation in the first quarter was 3.97%, higher than in the previous quarter. Core inflation for the first quarter measured a relatively low 4.25%.
The board said that although the rupiah depreciated on average by 1.03% in the first quarter, the bank will take measures to maintain its stability, such as buying government securities from the secondary market.
The board predicted that domestic economic activity will remain strong, even given the prolonged risk of global economic slowdown and possible government policy in subsidized fuel prices. The country's economic growth is forecasted to reach 6.4%, only slightly lower than the 6.5% of the first quarter, and is supported by improved economic financing, strong domestic demand and robust private consumption.
Bank Indonesia said that its policy coordination with the government, along with the ongoing strengthening of monetary and macroprudential policy risk, will likely ensure that inflation in 2013 will return to its range of 4½% plus or minus 100 basis points.
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