Indonesian Central Bank Rate to Stay at 6.5%

January 6, 2010

Bank Indonesia retained a 6.5% key interest rate as expected after its first policy meeting of 2010.  That was the same result as at the final four monthly meetings in 2009.  The rate had been 9.5% until a 25-basis point reduction in December 2008, followed by cuts of 25 bps in January 2009, 50 bps each in February, March and April, and 25 bps in May, June, July and August.  A new statement released today by monetary officials speaks of reduced inflationary pressure and a resilient economy.  Inflation rose just 2.4% in the year to November, least in a decade, and is targeted at 5% give or take 1 percentage point this year, which officials consider reachable at present policy settings.  The economy expanded 4.2% between 3Q08 and 3Q09 and is expected to show faster growth of 5-5.5% this year.  The complacent remarks in today’s statement indicate no urgency to begin lifting interest rates. Bank Indonesia will not be among the first wave of Asian rate raisers.  Unlike some other economies in the region, excessive bank credit growth is not a concern in Indonesia.  On the contrary, the central bank statement says that measures to promote readier bank lending, like a cut in reserve requirements, will be unveiled later this month.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.


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