Bank Indonesia Tightens Stance Further

November 15, 2018

The Indonesian central bank board of governors announced several changes:

  1. The 7-day reverse repo rate, deposit facility rate, and lending facility rate were hiked 25 basis points to 6.0%, 5.25%, and 6.75%. The key reverse repo rate has been lifted 7 times since mid-May for a total of 2 percentage points.
  2. Reserve requirements were also increased.
  3. Rules were introduced for rupiah interest rate derivatives, namely Interest Rate Swaps (IRS) and Overnight Index Swaps (OIS), in order to expedite further financial market deepening.

Today’s tightening was justified in a released statement¬†as part of “ongoing efforts to lower current account deficit within a manageable threshold” and being “also aimed at strengthening the attractiveness of domestic financial markets by anticipating global policy rate hike in the next few months.” Indonesia had a much greater trade deficit in October than anticipated, but growth has been solid, and inflation is being maintained within the 2.5-4.5% target range. Like many emerging market currencies, the rupiah has experienced bouts of selling pressure this year.

Copyright 2018, Larry Greenberg. All rights reserved. No secondary distribution without express permission.



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