Indonesian Monetary Policy Left Unchanged this Month After Rate Cuts of October and November

December 8, 2011

Bank Indonesia’s reference interest rate was left at 6.0% after this month’s policy meeting. Such was reduced by 25 basis points in October and 50 bps last month, and it is now lower than the post-Great Recession low of 6.5% maintained from August 2009 until a 25-bp rate hike in February 2011.  During the Great Recession, nine rate reductions between December 2008 and August 2009 slashed the reference rate by 300 basis points in total.

A statement released today projects somewhat slower growth in 2012 (but still greater than 6.0%), a pick-up in 2013, and in-target CPI inflation (that is 4.5% +/-1%) in both years.  With comparative high interest rates for the region, Bank Indonesia was among the last Asian central banks to implement an increase, which has now been more than reversed.  Today’s statement leaves the door open to further easings, ironically using the ECB’s V-for-vigilance word but in a connotation of possibly reducing rates: the “Board of Governors remains vigilant on the risks of Indonesia‚Äôs macroeconomic stability, including the risks of worsening global economy. In line with this condition, besides continuing on monetary and financial system stability by ensuring the adequacy of Rupiah and foreign exchange liquidity, Bank Indonesia also optimize the momentum on lower interest rate for economic stimulus effectiveness.”

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

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