Central Bank Rate Cut in Indonesia

October 11, 2011

The only rate increase of the current policy cycle, a 25-basis point hike last February, has been reversed to help “mitigate the impacts of declining global economic and financial performance on Indonesian economic performance.”  At 6.5%, the benchmark rate of Bank Indonesia returns to the level that was maintained from August 2009 until February 4, 2011.  Monetary officials in Indonesia had been far less aggressive in tightening than many of their counterparts elsewhere in Asia.  Today’s statement characterizes the outlook for inflation as manageable, predicting the consumer price index will stay in target, namely “5+1% in 2011 and 4.5%+1% in 2012.”  The current inflation rate is 4.6%.  Officials project economic growth of slightly more than 6.0% in each year. 

From December 2008 to August 2009, 300 basis points of rate cuts were implemented by Bank Indonesia.  The next policy announcement will be on November 10.  Today’s statement leaves the door open to further policy relief depending upon how officials see the fallout from the euro crisis upon Indonesia’s economy.

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

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