Bank Indonesia Stays Pat

Bank Indonesia kept its benchmark 7-day reverse repo rate steady at 4.75% on Thursday, as widely expected.

Indonesia’s central bank held rates unchanged for the sixth consecutive meeting and said that the current level was supportive of efforts to maintain macroeconomic and financial stability, econotimes reported.

BI also kept the deposit facility and lending facility rates, which act as the floor and ceiling of the overnight interbank money market, unchanged at 4% and 5.50%, respectively.

The central bank cut its benchmark rate six times last year by a total of 150 basis points and eased some lending regulations to help boost growth. Despite the numerous rate cuts by the central bank, the rupiah has actually strengthened on nominal effective exchange rate basis.

Arguably, a stable or stronger rupiah is a boost to growth momentum, given the positive impact it has on domestic investment. Indonesia’s growth has been stuck in the 5-5.5% range, a level that corresponds to stable demand pull inflation. Inflationary pressures have abated as the final electricity tariff hike has been postponed to at least until June.

It also appears that the government has been proactive in ensuring that prices for basic goods and services are contained which is evident from the m/m decline in food and transportation costs.

Indonesia’s economic growth in the first quarter of 2017 is predicted to remain well below its initial estimate. Economic growth is forecasted to increase in Q2, buoyed by improved investment and exports, while consumption is expected to be relatively stable.

Meanwhile, improving commodity prices and strengthening demand related to the global economic recovery are expected to boost export and investment performance.