Indonesia holds BI rate steady at 5¾%; inflation 'low and contained'

By Toni Weeks

San Diego, July 12 - Bank Indonesia announced that its board of governors decided at a meeting on Thursday to maintain the BI rate at 5¾%.

The board said that the inflation forecast is expected to remain low and contained within its target range of 4½% plus or minus 100 basis points for 2012 and 2013.

Inflation remained in check in the second quarter, as year-over-year core inflation was at 4.14%, attributable to declining global commodity prices and better expectations.

The rupiah depreciated in the second quarter, although with lower volatility relative to the previous quarter, supported by the bank's stabilization measures. The exchange rate depreciated by 2.65% quarter to quarter to Rp 9,393 to the dollar. Pressure on the rupiah was associated with the high demand for foreign currency for portfolio rebalancing by non-residents and strong imports.

The board said that the global economic slowdown has begun to affect Indonesia's external performance. As a result, the country's economy is expected to chart lower growth relative to previous forecasts as a result of weakening exports. Growth in Indonesia's economy is expected at 6.3% for the third quarter, at 6.1% to 6.5% in 2012 and at 6.3% to 6.7% in 2013. Private consumption and investment growth remains high, and this strong domestic demand supports economic growth. The main driver to economic growth is expected from the transportation and communication sector, the trade, hotel and restaurant sector and the manufacturing sector.

The bank also noted that financial system stability is well maintained with improving intermediation function to support financing of the economy.

The bank said it will continue to focus on maintaining external balance, containing inflation and maintaining exchange rate stability. To do so, it plans to strengthen the existing monetary and macroprudential policies and strengthen coordination of efforts with the government.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.