Bank Indonesia

January 14, 2016

In the face of persistent softer-than-hoped Indonesian growth in spite of prior macroprudential policy easing, monetary officials cut the BI interest rate by 25 basis points to 7.25%. A prior 25-bp reduction in February 2015 ha reversed a 25-bp rate hike in November 2014, and between June and November of 2013, the interest rate was jacked up 175 basis points to 7.50 to stem inflation fed by rupiah depreciation.  CPI inflation of 3.35% is now well below the target ceiling, and the current account deficit narrowed last year by about a percentage point of GDP.  However, cutting interest rates in these times of global financial volatility carries the risk of subjecting Indonesia’s currency to greater peril that could reverse progress in the area of price stability.  The rupiah in fact fell today, but that in part stemmed from a terrorist incident in Jakarta.

Copyright 2016, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.

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