Bank Indonesia

May 10, 2012

The Indonesian reference interest rate was left at 5.75% again, but a statement released by officials indicated, as did the previous April statement, a readiness to tighten in time: “Bank Indonesia is going to raise interest rate of monetary operation instrument and continue to absorb rupiah excess liquidity to contain short term inflationary pressure and provide support for Rupiah stabilization. Medium – long term interest rate structure is expected to pick up, therefore make investment in domestic securities more attractive.” The latest three rate changes were reductions of 25 basis points each in October 2011 and February 2012 that flanked a 50-bp reduction in November.  Those easings had more than offset the only post-Great Recession rate hike of 25 basis points undertaken in February 2011.  From December 2008 through August 2009, the reference rate had been reduced from 9.5% to 6.5%. 

Indonesia is experiencing economic growth in the middle of a 6-7% band.  CPI inflation has recently risen from 3.6% in February to 4.5% in April, and core inflation exceeds 4.0% as well.  Moreover, the rupiah depreciated in April.  Inflation is targeted between 3.5% and 4.5%, and officials again reaffirmed the belief that the inflation goal can be met both this year and next. 

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



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