Indonesian Monetary Policy Unchanged

July 12, 2011

First a little interest rate history.  Bank Indonesia during the Great Recession implemented nine consecutive monthly cuts of its key interest rate, totaling 300 basis points and ending with a 25-bp reduction to 6.5% in August 2009.  An 18-month rate pause followed until a 25-bp rate hike to 6.25% in February 2011, and officials have left the rate at 6.75% after each of the ensuing five meetings including one today. 

A statement released today stressed that CPI inflation has receded to 5.5% from 6.8% in February and is expected to be confined within target ranges of 4-6% this year and 3.5-5.5% in 2012.  In fact, officials believe that inflation could end up lower than they projected earlier.  Growth should exceed 6.0% in both years.  Other important goals are financial stability and avoiding excessive appreciation of the rupiah:

Bank Indonesia will continue to implement the policy mix of monetary and macroprudential measures, with focus on managing domestic liquidity, capital inflows, and exchange rate appreciation that is in line with the trend of exchange rate appreciation in the Asian region.

The next policy meeting is scheduled for August 9.

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

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