Indonesia Leaves Monetary Policy Unchanged

Indonesia's central bank left its benchmark 7-day reverse repo rate unchanged at 4.75 percent on July 20th 2017, in line with market expectations. The overnight deposit facility rate and the lending facility rate were also left steady at 4 percent and 5.5 percent, respectively. Policymakers said the decision is consistent with efforts to maintain macroeconomic and financial stability while still encouraging domestic economic recovery process.
Bank Indonesia l Rida Husna | 7/21/2017 1:35:03 AM
Excerpts from the Bank Indonesia Press Release: 

The global economy is improving as projected, despite several risks that demand vigilance. On one hand, the US economic growth is expected to be lower after the limited impact of fiscal policy and investment was squeezed by a potentially lower oil price. On the other hand, China’s economy is expected to accelerate on the back of stronger consumption and rising exports. The economy in Europe is also predicted to gain momentum as consumption increases, while export performance and optimism in the economy have improved. Moving forward, several global risks require close monitoring, especially coming from the US, including the planned FFR hike, the Fed’s plan to unwind its large balance sheet, and uncertainties in the fiscal policy.

Indonesia’s economic recovery process continue over the second quarter of 2017 albeit not as strong as previously projected. Consumption growth is potentially lower, as reflected by slower retail sales. Exports continued to grow, albeit below the previous projection due to slower growth of export volume for primary and manufacturing goods. In contrast, investment performance improves, especially in the nonbuilding sector related to natural resources, while building investment remains solid supported by government infrastructure projects but also by the private property sector. Going forward, economic growth is expected to increase, supported by stronger export performance and investment. With improvements in the second half of the year, Bank Indonesia predicts the 2017 national economic growth to stay within the 5.0-5.4 percent range. Several risks on the economic growth prospect still demand vigilance, especially related to slow domestic demand along with the ongoing consolidation in the corporate and banking sectors

Indonesia’s trade balance recorded a surplus in the second quarter of 2017. The trade surplus stood at USD3.5 billion, mainly supported by the large surplus in the non-oil and gas trade. Non-oil and gas export growth was recorded at 6.8 percent (yoy), specifically due to a hike in primary commodity rices, while non-oil and gas import growth was recorded at 4.9 percent, especially consumption goods import. Supported by the strong investor confidence, foreign capital inflow in Indonesia’s market on the second quarter of 2017 was recorded at USD4.3 billion, making the non-resident inflow through to the end of June 2017 to accumulate to USD9.6 billion. The position of official reserve assets at the end of the second quarted of 2017 was recorded at USD123.1 billion, down slightly from the USD121.8 billion registered at the end of the first quarter of 2017. The position of FX reserves was equivalent to 8.9 months of imports or 8.5 months of imports and servicing government external debt, which is well above the international standard of around three months.

Low headline inflation was observed in June 2017, thus supporting attainment of the 2017 inflation target, namely 4±1 percent. Consumer Price Index wa recorded at 0.69 percent June 2017, below the average rate during the Eid-ul-Fitr period for the past three years at 0.85 percent (mtm). Inflation was controlled by volatile foods and core inflation, which were lower than the historical average. Volatile foods inflation stood at 0.65 percent (mtm), below the historical average for the Eid-ul-Fitr period for past three years at 1.78 percent (mtm). This was the result of various government policies to stabilise food prices, combined with tight coordination with Bank Indonesia. Furthermore, core inflation in June 2017 was recorded at 0.26 percent (mtm), which was also below the historical average for the Eid-ul-Fitr period for past three years at 0.40 percent (mtm). 

Indonesia Leaves Monetary Policy Unchanged