Bank Indonesia Raises the BI Rate to 6.5%

Bank Indonesia decided on July 11th to raise the BI Rate by 50 bps to 6.5 percent and the Deposit Facility Rate by 50 bps to 4.75 percent, while the Lending Facility Rate remains at 6.75%. The policy mix intends to contain inflationary pressures, attain the exchange rate equilibrium and the stability of the financial system.

Economic growth in the United States is not as strong as earlier forecasts predicted, although the production and consumption activities showed improvement. Europe's economic problems are still not showing signs of significant improvement. Meanwhile, economic growth in China and India were lower than forecast, although still remains quite high. At the same time, global commodity prices are still likely to decline, except the price of oil. 

Indonesia's economic growth in 2013 is expected to be within the range of 5.8% -6.2%, lower than the previous forecast of 6.2% -6.6%. In addition to slowing growth in the second and the third quarter of 2013 respectively to 5.9%, the economy is expected to increase again in the fourth quarter of 2013 and continuing in 2014.

On the external side, balance of payments’ deficit in the second quarter of 2013 is estimated to be lower than in the previous quarter, supported by substantial surplus in the capital and financial accounts. On the other hand, current account deficit in the second quarter of 2013 is expected to increase compared to the previous quarter, due to seasonal effects. Export performance was depressed because of weak demand and falling commodity prices the world, while imports including oil and gas are still rising. 

The rupiah exchange rate in the second quarter of 2013 has depreciated in accordance with its fundamental value, in line with the trend of currency movements in other countries of Asia. Bank Indonesia views that the exchange rate at the moment describes the condition of Indonesia's economic fundamentals.

Inflation in June of 2013 edged up. Bank Indonesia predicts the impact of fuel price increases will last for approximately three months, with a peak in July 2013, then a drop in August 2013 and returning to the normal pattern in September 2013. Along with the Government, various measures will be taken to reduce the inflation rate to the target range of 4.5% ± 1% in 2014.

Bank Indonesia Raises the BI Rate to 6.5%

Bank Indonesia | Joana Taborda |
7/11/2013 11:49:25 AM