Bank Indonesia

July 14, 2015

The BI interest rate benchmark was again kept at 7.5%.  The 5.5% deposit rate and 8.0% lending facility rate were likewise not changed at the July Policy Board meeting.  In a a compressed span between June and November 2013, the BI rate was lifted by 175 basis points to its present 7.5%.  Last November, officials hiked the rate to a peak of 7.75% but reversed the final tightening just three months later in February.  Today’s statement of explanation prevents the conflicting factors that monetary officials are attempting to balance.  Inflation is well above the 3-5% target and accelerated unexpectedly in June, reaching 7.26% overall and 5.04% on a core basis.  The rupiah fell since the June meeting and is vulnerable to further depreciation as Fed tightening proceeds.  The statement acknowledges the inflationary risk that depreciation poses.  On the other hand, growth is not stellar, having slipped below 5.0%, and officials talk about the “ubiquitous uncertainty blighting global financial markets” as an added downside danger.  The view as at many other central banks is that sub-trend growth plus the fading effect of transitory inflation producers will in time bring inflation down closer to the target corridor. 

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.