Indonesia Leaves Rate Steady as Expected

Bank Indonesia left its benchmark 7-day reverse repo rate unchanged at 6 percent on 17th January 2019, as widely expected. Policymakers said the decision was consistent with efforts to reduce the current account gap towards a range of 2.5% of GDP in 2019 and maintaining the attractiveness of domestic financial markets. Current account deficit in the first quarter of the year is expected to be smaller, in line with seasonal trend. The lending and the deposit facility rates were also kept steady at 6.75 percent and 5.25 percent respectively.

Excerpts from the Bank Indonesia Press Release:

Bank Indonesia continues monetary operations strategy to maintain adequate liquidity in the Rupiah money market and foreign exchange market in order to support monetary and financial system stability. Moving forward, Bank Indonesia will continue to optimise its policy mix and strengthen coordination with the Government and other relevant authorities in order to maintain economic stability and strengthen external sector resilience, which entails controlling the current account deficit within the threshold of 2.5% of GDP in 2019.

Robust national economic growth is projected in Indonesia on the back of solid domestic demand. Various economic indicators released in the fourth quarter of 2018 point to strong domestic demand, underpinned by private and government consumption. Nevertheless, subdued export growth will persist due to a softening in the global economy and declining international commodity prices. On the other hand, imports are also expected to begin retreating in line with the policies implemented yet strong import growth will remain to satisfy domestic demand. Consequently, Bank Indonesia projects national economic growth for 2019 in the 5.0-5.4% range, backed by domestic demand and improvements in the position of net exports.

Indonesia’s trade balance recorded a deficit in December 2018 despite an influx of non-resident capital flows. The trade deficit stood at USD1.1 billion in the reporting period due to restrained export performance, non-oil and gas exports in particular, as a corollary of global headwinds. Meanwhile, foreign capital inflows returned in December 2018, reaching USD1.9 billion, with the trend persisting into January 2019. A strong position of reserve assets was recorded at the end of December 2019, totalling USD120.7 billion, equivalent to 6.7 months of imports or 6.5 months of imports and servicing government external debt, which is well above the international standard of three months.

The rupiah is appreciating, thus bolstering price stability. On average, the rupiah charged 1.16% higher against the US dollar in December 2018 despite experiencing 0.54% (ptp) depreciation in the same period on a point-to-point basis. The strong rupiah persisted into January 2019 as an influx of foreign capital flowed into the domestic markets in line with sound national macroeconomic fundamentals and slightly eased global financial market uncertainty. For the year, therefore, the Rupiah depreciated 6.05%, or 5.65% (ptp). Looking ahead, Bank Indonesia will remain vigilant of global financial market uncertainty and continue to implement exchange rate stabilisation measures in line with the currency’s fundamental value, while continue to maintain market mechanisms and supporting financial market deepening efforts.

Inflation is low and stable in 2018, remaining within the target corridor of 3.5±1% (yoy). CPI inflation was recorded at 0.62% (mtm) in December 2018 in line with cyclical yearend trends. Therefore, inflation in 2018 stood at 3.13% (yoy) Moving forward, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the Central Government and Local Administrations to maintain low and stable inflation, which is projected within the inflation target of 3.5±1% in 2019.

Indonesia Leaves Rate Steady as Expected

Bank Indonesia l Chusnul Ch Manan |
1/17/2019 9:38:31 AM