Bank Indonesia: No Follow-Up Rate Hike Yet

March 4, 2011

Indonesian monetary authorities implemented their first rate hike last month since October 2008, a 25-basis point increase to 6.75%.  There had previously been 17 consecutive monthly meetings without a policy change, and that was the result of this month’s meeting as well, the Board of Governors reported today.  The rate increase in February followed tighter reserve requirements instituted in December.  From December 2009 to August 2009, the central bank was cut at nine consecutive meetings by a total of 300 basis points to 6.5% against the backdrop of recession and falling inflation.  CPI inflation stood at 12.1% when the central bank rate crested in October 2008 and fell to 2.8% by the end of 2009, but an acceleration caused by rising commodity prices set the stage for last month’s increase.  On-year inflation rose from 6.35% in November to 6.96% in December and 7.02% in January 2011 before settling back to 6.8% last month.  In February when the first rate hike was made, officials observed some up-drift in expected inflation.  But this month, confidence was expressed that inflation this year will meet the central bank’s target range of 4-6%. Analysts had not been looking for a follow-up rate hike as soon as this month.  Meanwhile, Indonesia continues to recover from the recession.  GDP posted fourth-quarter over fourth-quarter growth of 6.9% in 2010.

Copyright Larry Greenberg 2011.  All rights reserved.  No secondary distribution without express permission.



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