Bank Indonesia Leaves Monetary Policy Unchanged As Expected

April 6, 2010

Bank Indonesia released another fairly dovish statement, keeping the BI benchmark rate unchanged at 6.5% following an eighth straight meeting and indicating that these steady low rates can be maintained for at least a few more months.  Officials are upbeat about growth, nudging up the projected range to 5.5-6% this year and 6.0-6.5% in 2011 but also expressing optimism that inflation will remain benignly within its target of 5.0% give or take one percentage point.  Helped in part by an appreciating rupiah, consumer prices in fact dipped 0.14% in March and to a 3.43% 12-month rate of rise from 3.81% in February.  CPI inflation in 2010 as a whole is foreseen printing at about 4.8%. Officials left open the door for steady policy beyond a few more months, saying that increases will not be made if it’s not really necessary.  A first move in the present quarter thus appears remote, and a move next quarter is far from guaranteed.  The decision will depend on the evolution of the rupiah, consumer price inflation, domestic economic activity, and probably what other central banks in the region do.  Bank Indonesia began easing in the world recession later than many central banks because of stubborn inflation in 2008, not making its first cut until a 25-bp cut from 9.5% to 9.25% in December of that year.  Additional cuts followed  in each of the first eight months of 2009: 25 bps in January, 50 bps in February through April, and 25 bps each in May through August.  The jobless rate remains above 8.0%.

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



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