Bank Indonesia Leaves Reference Interest Rate Unchanged

April 12, 2012

As they did after the previous Board of Governors’ meeting on March 8, policymakers at Bank Indonesia elected to keep their reference interest rate at 5.75%.  A statement was released that spoke of a readiness to tighten if the government’s policy of cutting subsidies on fuel prices leads to more than temporary pressure on inflation, but such an outcome is not expected.  While economic growth is projected to range near 6.5% over the forecast horizon, “Bank Indonesia is confident that inflation in 2013 can be controlled towards the range of 4.5%±1%.” 

After cutting the reference rate by 300 basis points during the Great Recession to 6.5%, Bank Indonesia had authorized only a single rate increase of 25 bps subsequently, and this was done in February 2011.  When the euro debt crisis and slower demand in China raised concern last autumn, that move was reversed in October and followed by a 50-bp rate cut in November and a 25-bp cut in February of this year.  5.75% is a record low.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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