No Change in Indonesian Benchmark Interest Rate

April 12, 2011

Indonesian monetary officials continue to drag their feet compared to their counterparts tightening policy elsewhere in Asia.  During the Great Recession, the benchmark interest rates was slashed by 300 basis points (9.5% to 6.5%) from January through August of 2009.  Seventeen monthly meetings of retained 6.5% followed, then a 25-basis point increase enacted in February 2011, and again no change at the meetings in March and April.

Officials can point to lower CPI inflation in March than February, but the 6.65% pace last month still exceeded the 4-6% target range for this year, which will drop to a band of 3.5-5.5% in 2012.  The rupiah is 4.4% stronger against the dollar than a year ago, and real GDP expanded almost 7% between 4Q09 and 4Q10.  Growth should again exceed 6% this year and probably next as well.  Sooner rather than later, officials are going to have to kick up the pace of rate normalization a notch.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.

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