Another Indonesian Central Bank Interest Rate Cut

February 18, 2016

Policymakers at Bank Indonesia reduced the BI rate, the lending facility rate and the deposit facility rate by 25 basis points each to 7.0%, 7.5% and 5.0%.  This was the third decline in a year, after similarly-sized moves in February 2015 and January 2016.  Officials also cut the primary reserve requirement by a full percentage point to 6.5% and released a statement justifying the easing by its consistency “with greater room to ease monetary policy on the back of solid macroeconomic stability, especially in terms of less intense inflationary pressures in 2016 as well as less uncertain global financial markets.”  Economic growth last year of 4.8% was the lowest since the world’s Great Recession, but the second half of the year was more dynamic than the first half.  2016 is projected to see growth of more than 5.0% but not much above that, along with in-target inflation and a current account to GDP ratio somewhat under 3%.  The inflation target range is 3-5%.  Exchange rate stability is another objective and one that probably constrains how much more easing BI officials attempt.

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

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