Indonesia holds repo rate at 4¾%, expects ‘17 inflation within target

By Wendy Van Sickle

Columbus, Ohio, Feb. 16 – Bank Indonesia said its board of governors agreed to hold the BI seven-day reverse repo rate at 4¾%, while keeping the deposit facility and lending facility rates at 4% and 5½%, respectively, effective Jan. 20.

The policy is consistent with efforts to preserve domestic economic recovery momentum while maintaining macroeconomic stability, the bank said in a statement following its meeting held Wednesday and Thursday.

Bank Indonesia said the global economy improved on gains in the United States and China and rising international commodity prices. It expects U.S. economic momentum and robust growth to continue.

Meanwhile, world commodity prices, including oil and Indonesia’s export commodities, have improved.

However, multiple global risks required heightened vigilance, the bank said.

Domestic growth accelerated on strong household consumption and improvements in exports and investment. The national economy achieved 5.02% growth year over year, up from 4.88% in 2015.

After suffering in the fourth quarter of 2016, the rupiah stabilized with a tendency to strengthen amid uncertainty regarding policy direction in the United States, the bank said.

Inflation remained under control, despite a slight bump recorded at the beginning of 2017. Administered prices and core inflation pushed CPI inflation to 0.97% month to month in January, up from 0.42% in December. Core inflation was controlled at 0.56% month to month, or 3.35% year over year.

The bank said it will keep up efforts to coordinate with the government to control inflation in the face of risks stemming from administered prices, as the government reforms energy subsidies, and the risk of rising volatile food prices.

With these steps, the bank predicts inflation will be within the target corridor of 4% plus or minus 1% for 2017.

As previously announced, the bank has maintained the BI seven-day reverse repo rate since October when it was reduced by 25 bps to its current 4¾% rate.

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