More Monetary Tightening in Indonesia

September 12, 2013

The Bank Indonesia Rate has been raised four times in the space of three months by a total of 150 basis points to 7.25%, the highest level in slightly over four years.  Today’s increase was by 25 bps and follows by just two weeks an unscheduled meeting that resulted in a 50-bp increase.  Officials also lifted the overnight lending rate and deposit rate by 25 basis points to 7.25% and 5.50%.  A statement from officials explains that

This action forms part of the follow-up measures taken to reinforce the policy mix instituted by Bank Indonesia, which focuses on controlling inflation, stabilizing the rupiah exchange rate and ensuring the current account deficit is managed to a sustainable level.

The CPI rose 8.8% in the year to August, a 7-year high and well above the 2014 target of 3.5-5.5%.  The rupiah fell nearly 6% against the dollar in August, and Indonesia’s current account deficit amounts to about 2.5% of GDP.  The statement expresses guarded optimism that the tightening of monetary policy will promote significant improvement in all three intended areas.  Growth has slowed below the 6% threshold.

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



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