Indonesia’s 7-Day Reverse Repo Rate Left Unchanged at 5.25%

July 19, 2018

The Board of Governors at Bank Indonesia took a pause after having hike its interest rate three times in the space of six weeks. This had lifted the key 7-day reverse repo rate to 5.25% as of June 29th from 4.25% prior to an initial hike of 25 bps on May 17. There was also an unscheduled meeting and rate hike at the end of May, guided by the central bank’s new governor. While leaving the 5.25% 7-day reverse repo rate, the 4.5% deposit facility rate, and the 6.0% lending facility rate all unchanged this time, the statement released by officials strikes a hawkish tone. Officials fell that for now that a full percentage point of tightening will promote sufficient capital inflows but are under no illusion that these are difficult times for Indonesia and other emerging economies. “With inflation increasing, the Fed is forecast to continue the Fed Fund Rate (FFR) hike. The US-China trade tensions elevate risks in the global financial market and sustainability of global economic recovery. Developments in the global economy prompted USD appreciation against nearly all global currencies, including the Rupiah. High uncertainty in the global financial market has also resulted in capital reversal from emerging markets.” And, “the Rupiah has depreciated by 5.81% (ytd) on the level posted at the end of 2017, not as severe as reported in other developing economies, including the Philippines, India, South Africa, Brazil and Turkey. Moving forward, Bank Indonesia will remain vigilant of global financial market uncertainty risks, while maintaining the Rupiah exchange rate in line with the currency’s fundamental value, backed by financial market deepening efforts. The policies remain backed by double intervention strategies and monetary operation strategies to maintain adequate liquidity, especially in the Rupiah and interbank swap markets.”

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.

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