Bank Indonesia keeps rate at 7½%, will focus on currency stabilization

By Angela McDaniels

Tacoma, Wash., Oct. 15 – Bank Indonesia’s board of governors decided on Thursday to hold the BI rate at 7½%, the deposit facility rate at 5½% and the lending facility rate at 8%, according to an announcement from the bank.

Bank Indonesia predicts that 2015 inflation will stay within the lower half of its 4% target corridor.

The bank believes that pressures on macroeconomic stability have eased, opening room to loosen its monetary policy, but it is choosing to remain cautious due to a high level of uncertainty in the global market.

Bank Indonesia’s policy will continue to focus in the near term on currency stabilization measures by continuing to maintain rupiah stability and strengthening rupiah liquidity management as well as the supply and demand of foreign exchange.

In Indonesia, domestic economic growth in the third quarter of 2015 is projected to slightly outpace that posted in the previous quarter due to greater capital spending by the government despite relatively sluggish private sector activity, according to the announcement.

While relatively limited, private investment is expected by the bank to buck its downward trend due to the policy packages introduced recently by the government, including deregulation to buoy the investment climate.

On the other hand, consumption indicators, including retail sales and consumer confidence, were down, though the bank said they have begun to show signs of improvement with automotive sales continuing to rise. Exports are also predicted to increase gradually.

The bank said Indonesia’s trade balance recorded a surplus in September, primarily supported by a non-oil and gas trade surplus. The trade surplus stood at $1.02 billion, exceeding the $330 million posted in August.

The rupiah rebounded at the beginning of October. The bank attributed the appreciation to positive sentiment regarding the possible delay of a hike in the federal funds rate in the United States and optimism concerning the domestic economic outlook after the Indonesian government released a series of policy packages and Bank Indonesia intervened to stabilize the exchange rate.

Consumer price index deflation stood at 0.05% month to month, or 6.83% year over year, on an annualized basis in September, primarily due to volatile food and administered prices. Consequently, headline inflation from January to September was 2.24%, according to the bank.

On the other hand, core inflation was recorded at 0.44% month to month, or 5.07% year over year, which the bank said was down on the previous period due to ready-to-consume foods, education fees and gold jewelry.

© 2015 Prospect News.
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