More Monetary Tightening in Indonesia
September 12, 2013
The Bank Indonesia Rate has been raised four times in the space of three months by a total of 150 basis points to 7.25%, the highest level in slightly over four years. Today’s increase was by 25 bps and follows by just two weeks an unscheduled meeting that resulted in a 50-bp increase. Officials also lifted the overnight lending rate and deposit rate by 25 basis points to 7.25% and 5.50%. A statement from officials explains that
This action forms part of the follow-up measures taken to reinforce the policy mix instituted by Bank Indonesia, which focuses on controlling inflation, stabilizing the rupiah exchange rate and ensuring the current account deficit is managed to a sustainable level.
The CPI rose 8.8% in the year to August, a 7-year high and well above the 2014 target of 3.5-5.5%. The rupiah fell nearly 6% against the dollar in August, and Indonesia’s current account deficit amounts to about 2.5% of GDP. The statement expresses guarded optimism that the tightening of monetary policy will promote significant improvement in all three intended areas. Growth has slowed below the 6% threshold.
Copyright 2013, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank Indonesia
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