Bank Indonesia Eases Monetary Policy for Second Month in a Row

November 10, 2011

Indonesia’s reference central bank interest rate has been cut somewhat unexpectedly by 50 basis points to 6.0%.  The rate was slashed by 300 basis points between December 2008 and August 2009 and had remained at 6.5% until a 25-bp rate hike in February 2011.  Bank Indonesia had thus been among the last Asian central banks to begin normalizing rates.  Now after cuts of 25 bps in October and 50 bps today, the 6.0% level constitutes a new cyclical low.

A statement on the Bank Indonesia web site justifies the additional easing of credit policy by the declining trend of CPI inflation and preventive effort to mitigate any adverse impact on Indonesia’s economy from the darkening global outlook.  Current economic conditions remain reasonably goods.  On-year GDP growth has been 6.5% through the first three quarters of 2011, the balance of payments swung into surplus this quarter, domestic financial conditions are improved, and the rupiah has softened just moderately.  CPI inflation of 4.4% is below the mid-point of this year’s 4-6% target range, and inflation next year should be about 4% and thus toward the bottom of that year’s target corridor of 3.5-5.5%.

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



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