No Change Made in Indonesia’s Central Bank Reference Rate

May 14, 2013

Bank Indonesia’s main interest rate has been at a record low of 5.75% since a 25-basis point cut in February 2012 culminated a 100-bp three-step easing engineered within a four-month span.  Only one hike of 25 basis points in February 2011 had followed 300 bps of easing between December 2008 and August 2009. 

The words of Indonesian monetary officials continue to be more hawkish than their actions.  A statement following the latest monthly policy meeting promises to “closely monitor the risk of inflationary pressures emanating from rising inflation expectations in view of the possibility of a Government policy decision related to oil-based fuels.”  Even though consumer prices posted a benign 0.1% on-month dip in April, the 12-month increase of 5.57% remained a tad above the inflation target range of 3.5-5.5%.  Other concerns to officials are the rupiah and the current account deficit.  The rupiah recently has been more stable, while the current account shortfall narrowed to 2.4% of GDP in the first quarter from 3.5% in 4Q12.  Still, vigilance is needed to ensure that improvement is sustained.  Economic growth in 2013 is expected to only slightly surpass the 6.0% pace of the first quarter.  Second quarter will be similar to 1Q, and growth for the year as a whole will lie toward the low end of the 6.2-6.6% target.

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



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