Bank Indonesia Officials Strike Note of Caution

November 17, 2016

Earlier in 2016, the Bank Indonesia Board of Governors had sanctioned 25-basis point interest rate cuts in each month of the first quarter plus June, September and October. Coming into this month’s meeting the rate stood at 4.75%, still well above inflation and amid continuing shrinkage of Indonesia’s current account deficit. Nonetheless, officials opted for a cautious approach that left the rate at 4.75%. A released statement put the reason for prudence right up at the top of the document.

The policy is consistent with Bank Indonesia’s prudence in response to increasingly uncertain global financial markets in the wake of the US election against a stable domestic macroeconomic backdrop, reflected by low inflation and a narrower current account deficit. Furthermore, Bank Indonesia will continue to stabilise exchange rates in line with the Rupiah’s fundamental value while keep maintaining market mechanisms.

Later, forex policy was clarified further

From the 1st of 16th of November, the Rupiah depreciated by an average of 2.53% to Rp13,378 per USD as uncertainty reappeared after the US election. Nevertheless, depreciatory pressures on the rupiah were relatively limited compared to the currencies of other emerging market economies (EME). Consequently, the rupiah has appreciated by 2.97% (ytd) this year. Moving forward, Bank Indonesia will continue to stabilize exchange rates in line with the rupiah’s fundamental value by maintaining market mechanisms.

Projected Indonesian growth was trimmed marginally.

Copyright 2016, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



Comments are closed.