Bank Indonesia Leaves Key Rate at 6.75% But Takes Other Action to Guard Against Global Risks

September 8, 2011

Indonesian monetary tightening has lagged the aggressive policy response of many other Asian central banks.  Only one rate hike had been implemented, a 25 basis point increase of the key reference rate to 6.75% in February 2011 following 17 consecutive decisions that retained the cyclical trough of 6.5%.  This month’s meeting retained a 6.75%.  In addition, “to stimulate transactions in the money market under the continuing large excess liquidity, Bank Indonesia decided to widen the lower band of interest rate corridor for monetary operations from 100 bps to 150 bps below BI Rate. The decision was taken by considering the importance of maintaining macroeconomic stability amid the heighten uncertainty in the global financial system triggered by the US and Euro area debt.”  Indonesian inflation has risen to 4.8% in August versus target ranges of 4-6% this year and 3.5-5.5% in 2012.   The full central bank statement can be read by clicking here.

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

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