Indonesia’s Reserve Requirement Lowered 50 Basis Points

November 17, 2015

At the November Board of Governors meeting at Bank Indonesia, officials agreed to ease monetary policy via a reduced via a reduction of the primary reserve requirement in Rupiah from 8.0% 7.50.  The BI reference interest rate and the central bank deposit rate were left unchanged at 7.5% and 5.5%, respectively.  These had been cut last February by 25 basis points.  From June through November 2013, the BI rate had been increased by 175 basis point and a further 25-bp hike was added in November 2014 to ensure the a rising trend in inflation got reversed.  CPI inflation is targeted for a range of 3-5% currently.   A statement released after this month’s meeting makes several points:

  • December 1 will be the effective date for the newly lowered reserve requirement ratio.
  • “The macroeconomic stability has continued to improve, making room for monetary policy easing.”
  • Decent growth continues: “domestic economic growth was projected at the lower end of the 4.7-5.1% range for 2015 and is expected to increase to 5.2-5.6% in 2016.”
  • Officials project Indonesia’s current account deficit this year to equal about 2% of GDP.
  • A stable exchange rate is desired.  “The Rupiah rebounded after intense depreciatory pressures were felt in the third quarter.”
  • “Bank Indonesia confirmed that inflation in 2015 will fall towards the lower end of the 4±1% target, supported by strong policy coordination with the government to control inflation locally and nationally. In addition, low inflation through to October 2015 was also indicative of maintained price stability.”
  • “The global recovery remains uneven, while pressures on global financial markets demand vigilance.”
  • The next meeting is scheduled for December 17th.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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