Indonesia holds repo rate at 5¼% to maintain ‘market attractiveness’

By Susanna Moon

Chicago, July 19 – Bank Indonesia said its board of governors decided to keep the BI seven-day reverse repo rate unchanged at 5¼% at its meeting held Wednesday to Thursday.

The policy is aimed at upholding “domestic financial market attractiveness against a backdrop of pervasive uncertainty blighting the global financial markets in order to maintain stability in general and rupiah exchange rate stability in particular,” according to a bank statement.

“Global financial market uncertainty remains high, amid uneven world economic growth dynamics,” the release added.

The bank said that its macroprudential policy easing measures will boost “liquidity management flexibility as well as banking intermediation for economic growth.”

The high U.S. economic growth is expected to come with increasing inflation, while economic growth in Europe may be weaker than forecast and “China’s economic growth is not yet improving,” the bank said.

CPI inflation was recorded at 0.59% month to month in June, up from 0.21% the previous month, due to the seasonal spike in demand during Eid-ul-Fitr, the bank said.

Annually, headline inflation fell to 3.12% year over year from 3.23% in the reporting period, the release noted.

“Controlled inflation was backed by stable core inflation in line with Bank Indonesia’s policy consistency to anchor rational inflation expectations, including efforts to maintain the rupiah exchange rate in line with the currency’s fundamental value.”

Inflation in 2018 is expected to hold in the target range of 3.5% plus or minus 1%.

The bank said on May 17 that it increased the BI seven-day reverse repo rate by 25 basis points to 4½%, effective May 18, in line with the bank’s policy “to maintain economic stability amid the escalating risks in the global financial market and global liquidity downturn.”

Then on June 29 the bank said it raised the repo rate by another 50 bps to 5¼% in a “preemptive, front-loading and ahead of the curve move to maintain the domestic financial market’s competitiveness against several countries’ changing monetary policies as well as high global uncertainty.”

© 2015 Prospect News.
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