Indonesian Monetary Policy Still on Hold

December 11, 2012

The latest statement from Bank Indonesia’s Board of Governors does not even hint of a possible near-term change of the central bank’s 5.75% main interest rate.  That’s been the level since three cuts amounting to 25 basis points in October 2011, 50 bps in November 2011, and 25 bps last February.  Indonesian interest rates bottomed at a higher 6.5% in the Great Recession than found generally in Asia.  By the same token, Bank Indonesia was late to start tightening and in fact implemented just one 25-bp increase in February 2011 that was reversed eight months later. 

Officials are not worried about inflation.  CPI inflation of 4.3% last month was below the central bank’s target range midpoint of 4.5%.  The Board of Governors projects in-target (3.5-5.5%) inflation both next year and in 2014.  Today’s statement notes that “core inflation was also contained, driven by subdued imported inflation in line with declining global food and energy prices, relatively stable rupiah, well-anchored inflation expectation, and better supply side response.”  Price stability is being accompanied by decent growth of slightly more than 6.0%.  Finally, a concern early in 2012 about the current account has subsided.  A previous deficit swung to a surplus in 3Q12, and that surplus seems to have widened in the final quarter of the year.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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