No Change in Indonesian Interest Rate

November 4, 2010

Indonesia does not rank among those Asian countries where central banks have begun to raise interest rates.  Bank Indonesia kept it benchmark policy interest rate at 6.5%, the level since a 25-basis point cut made fifteen months ago.  Consecutive monthly reduction from December 2008 until then had cut the key rate by 300 basis points from a cyclical high of 9.5%.  Consumer price inflation of 5.7% in October after 5.8% in September, 6.4% in August and 6.2% in July is back within the targeted boundaries of 4-5% in 2010 and 2011 but still mariginally above that for 2012 of 3.5-5.5%.  The growth of real GDP seems likely to quicken in the current quarter and to be slightly faster than 6% both this year and next.  The central bank remains intent on promoting the functionality of Indonesia’s banks and overall financial market stability.  Bank Indonesia has also expressed concern about capital inflows and upward pressure on the rupiah and has been considering lengthening the minimal required period for holding debt.  The rupiah has risen around 21% against the dollar over the past 18 months and is about 88% stronger than its low of 16,800 per USD in June 1998.

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



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