Indonesia Reference Interest Rate Unchanged

August 9, 2011

It’s no surprise that Bank Indonesia’s key monetary policy rate will remain at 6.75% following this month’s policy meeting.  Officials have shown no urgency to tighten policy, lagging behind most other Asian central banks.  In contrast to the elevated price pressures in China and elsewhere, Indonesian CPI inflation in July was at a 14-month low of 4.6% and near the lower quadrant of this year’s 4-6% target range.  Such had been as high as 12.1% in October 2008.  The target drops by a half percentage point next year, and even against that goal, inflation is now in mid-range.  A statement from officials downplays the threat to Indonesia from the various woes and turbulence afflicting the United States and Europe.  The authorities expect GDP in the second half of 2011 to outpace the 6.5% pace in the first half.

Just a single 25-basis point reference rate hike has been implemented so far, an increase this past February to 6.75%.  The rate remains 275 basis points below the cyclical peak of 9.5% in October 2008.  Eight cuts — six of 25 bps and three of 50 bps — were made from December 2008 through August 2009.  The rupiah is about 5.5% stronger against the dollar than a year ago.

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



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