Bank Indonesia

March 7, 2013

Indonesia’s reference interest rate has been at 5.75 since a 25-basis point cut in February 2012.  That’s not much above the latest total on-year consumer price inflation rate of 5.31%. However, core inflation of 4.3% is sufficiently behaved, and a statement released after this month’s meeting expresses confidence that “the current policy rate is considered consistent with inflation target range of 4.5%±1% in 2013 and 2014.”  Indonesia’s current account deficit, equivalent to about 2.5% of GDP, has at times over the past year exposed the rupiah to selling pressure, but officials predict a smaller external deficit in early 2013 and observe lessening strain on the exchange rate lately.  Indonesia enjoys decent economic growth that should again top 6.0%.  For some time, officials have prioritized growth over price stability.  Bank Indonesia was one of the last Asian central banks to lift its interest rate after the Great Recession, did so only once and by 25 bps to 6.75%, and subsequently more than reversed that move to attain a new low on its interest rate.

Copyright 2013, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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