Bank Indonesia’s Main Interest Rate Left Unchanged at 7.5%

December 12, 2013

The 7.5% BI rate is at its highest level since April 2009 when it was en-route from 9.5% prior to December 2008 to 6.5% by August 2009.  The current trend, in contrast, is upward.  From 5.75% maintained previously since February 2012, the BI rate was lifted this year in the face of rupiah depreciation, an excessive current account deficit, and above-target inflation by 25 bps in June, 50 bps in July, 50 bps in August, 25 bps in September and 25 bps last month.  Today’s statement doesn’t compellingly defend the decision not to tighten further this month.  True, the trade balance appears to be improving.  But inflation of 8.4% lies way above the 3.5-5.5% target, and a slide in the rupiah has resumed on Fed tapering talk.  Officials expect growth next year to land on the weak side of the 6% forecast pivot.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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