Indonesia Leaves Monetary Policy Unchanged


Bank Indonesia left its benchmark 7-day reverse repo rate unchanged at 6 percent on 21th February 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 for foreign investors. The lending and the deposit facility rates were also kept steady at 6.75 percent and 5.25 percent respectively. For 2019, the central bank expects Indonesia economy to grow between 5.0-5.4 percent.

Excerpts from the Bank Indonesia Press Release:

Moving forward, Bank Indonesia will undergo accommodative macroprudential policy and strengthen payment system policy to expand economic financing. Coordination with the Government and other relevant authorities are increased in order to maintain economic stability, to maintain economic growth momentum.

National economic growth momentum has been maintained on the back of domestic demand. Solid economic growth in Indonesia reached 5.18% (yoy) in the three months to December 2018, up from 5.17% (yoy) in the previous period. The economy continues to expand on resilient domestic demand in line with increasing household consumption and consumption by non-profit institutions serving households (NPISH). Investors remain upbeat on the domestic economic outlook, which has fed through to strong investment performance. Meanwhile, net exports are negative, weighed down by global economic softness and falling commodity prices. Moving forward, Bank Indonesia projects solid economic growth for 2019 in the 5.0-5.4% range, bolstered by household and NPISH consumption as well as strong investment.

In the final quarter of 2018, the current account deficit stood at USD9.1 billion in the fourth quarter of 2018, equivalent to 3.57% of GDP. For the year, however, the current account deficit has remained within a manageable threshold at 2.98% of GDP. In January 2019, Indonesia’s trade balance experienced a USD1.16 billion deficit as a corollary of dwindling global demand against a backdrop of persistently strong domestic demand. Foreign capital inflows were maintained in January 2019, recorded at USD2.2 billion, which continued into February 2019. Consequently, the position of reserve assets was solid at USD120.1 billion at the end of January 2019, 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. Furthermore, Bank Indonesia will continue to enhance coordination with the Government in order to strengthen external sector resilience by reducing the current account deficit to around 2.5% of GDP in 2019, amongst others.

The Rupiah appreciated, thus supporting economic stability. Point to point, the Rupiah gained 3.63% (ptp) in the fourth quarter of 2018 compared with conditions at the end of the previous period, boosted by a positive balance of payments. The strong Rupiah persisted into January 2019, appreciating another 2.92%, with the trend continuing into February 2019 on the back of non-resident capital inflows to domestic financial markets, drawn by solid economic fundamentals as well as attractive on domestic financial assets and less global economic uncertainty. Bank Indonesia believes that the Rupiah will remain stable, in line with market mechanisms.

Inflation is low and stable within the target corridor for 2019 at 3.5%±1%. CPI inflation in January 2019 was recorded at 0.32% (mtm) or 2.82% (yoy), down from 0.62% (mtm) or 3.13% (yoy) the month earlier. Looking ahead, Bank Indonesia will consistently maintain price stability and strengthen policy coordination with the Central and Regional Government to maintain low and stable inflation, which is projected within the inflation target of 3.5%±1% in 2019.
 

Indonesia Leaves Monetary Policy Unchanged


Bank Indonesia l Chusnul Ch Manan | chusnul@tradingeconomics.com
2/21/2019 10:08:30 AM