Indonesian Monetary Policy Kept Steady as Expected

October 5, 2010

The Bank Rate of Bank Indonesia was left at 6.5%.  This was the 14th consecutive monthly meeting to leave policy unchanged.  The previous nine meetings between December 2008 and August 2009 all resulted in a reduction of the rate, the sum of which amounted to 300 basis points from a cyclical crest of 9.5%.

A new statement released today predicts in-target CPI inflation but identifies a number of upside price risks against which officials are prepared to act if necessary.  These include solidly growing domestic demand, weather anomalies, abundantly excessive liquidity, heavy capital inflows, and planned administered price increases.  The CPI target ceilings are 6% this year and next and 5.5% in 2012.  Consumer prices rose 5.8% in the year to September, down from a 12-month rate of 6.4% in August.  Real GDP, which thanks mainly to dynamic exports and consumption was 6.2% greater in 2Q10 than in 2Q09, is forecast to expand by 6-6.3% this year and 6-6.5% next year.  Three factors delaying the onset of higher interest rates are

  1. The fact that Bank Indonesia’s benchmark rate bottomed at a higher level than the lows reached in many other Asian economies.
  2. A need to safeguard financial market stability and to promote bank intermediation between borrowers and lenders.
  3. The rupiah’s 8.2% appreciation against the dollar over the past year.

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



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