Indonesia Leaves Rate Steady as Expected


Bank Indonesia left its benchmark 7-day reverse repo rate unchanged at 6 percent on May 16th 2019, as widely expected. Policymakers said the decision is consistent with efforts to maintain the external stability of the Indonesian economy amid uncertainty over the increasing global financial market. The lending and the deposit facility rates were also left steady at 6.75 percent and 5.25 percent respectively.

Excerpts from the Bank Indonesia Press Release:

Indonesia's economic growth is lower than the forecast influenced by the declining global economy. Indonesia's economy in the first quarter of 2019 grew 5.07% (yoy), lower than the previous quarter of 5.18% (yoy), although it increased from 5.06% in the first quarter of 2018. The decline in global economic growth and more commodity prices low has had an impact on the decline in Indonesia's export growth, which then affects household consumption and slowing non-construction investment. The effect of spending related to 2019 Election activities on consumption is lower than forecast. Spatially, the slowdown in national economic growth was mainly influenced by declining growth in Java, Kalimantan and Papua, while other regions increased. Forward, efforts to boost domestic demand in terms of investment, especially the private sector, need to be increased to mitigate the negative impact of the lack of recovery in export performance due to the global economic slowdown. Overall, Bank Indonesia predicts Indonesia's 2019 economic growth to be below the midpoint of the range 5.0-5.4%. Bank Indonesia will take a policy mix with the Government and related authorities to maintain the momentum of economic growth.

The weakening Rupiah exchange rate in May 2019 was affected by the impact of global uncertainty and the seasonal pattern of increasing foreign exchange demand. After earlier strengthening in April 2019, the Rupiah exchange rate on May 15, 2019 was recorded to weaken 1.45% point to pointcompared to the final level of April 2019 and 1.36% on average compared to the average of April 2019. The weakening rupiah exchange rate in May 2019 was inseparable from the influence of global sentiment related to escalating trade wars which put pressure on emerging market currencies, including the Rupiah. In addition, the seasonal pattern of increasing foreign exchange demand for the needs of non-resident dividend payments also affected the weakening of the rupiah. Going forward, Bank Indonesia views the Rupiah exchange rate will move stably with market mechanisms that are maintained in line with the outlook for the improved BOP 2019. To support the effectiveness of exchange rate policies and strengthen domestic financing, Bank Indonesia continues to accelerate financial market deepening, both in the money market and foreign exchange.

April 2019 inflation is under control so that it sustains overall economic stability. The Consumer Price Index (CPI) inflation remained low, which in April 2019 was recorded at 0.44% (mtm) or 2.83% (yoy), although it increased compared to the previous month's inflation of 0.11% (mtm) or 2.48 % (yoy). The increase in April 2019 inflation was mainly influenced by the increase in volatile food inflation and administered prices inflation, while core inflation was stable. Inflation volatile food mainly sourced from commodity onions, peppers and eggs. Administered prices inflationmainly from air freight and cigarette tariffs. Meanwhile, controlled core inflation is inseparable from the consistency of Bank Indonesia's policies in directing inflation expectations, including in maintaining exchange rate movements in accordance with its fundamentals. Going forward, Bank Indonesia will remain consistent in maintaining price stability and strengthening policy coordination with the Government, both at the central and regional levels, to ensure inflation remains low and stable which is predicted to be below the midpoint of the 3.5 ± 1% inflation target range in 2019.

Indonesia Leaves Rate Steady as Expected


Bank Indonesia l Agna Gabriel | agna.gabriel@tradingeconomics.com
5/16/2019 9:47:11 AM