Indonesia Holds Key Interest Rate at 6%

Bank Indonesia held its benchmark 7-day reverse repo rate at 6 percent on June 20th 2019, as widely expected. Policymakers said the decision is directed to ensure the availability of liquidity on the money market. The Committee added that will continue to monitor global financial market conditions and the external stability of the Indonesian economy in considering a reduction in policy rates. The lending and the deposit facility rates were also left unchanged at 6.75 percent and 5.25 percent respectively.

Excerpts from the Bank Indonesia Press Release:

Indonesia's economic growth in the second quarter of 2019 is predicted to decline due to falling export performance. The escalation of trade relations tensions has resulted in a decline in Indonesia's export performance due to limited world demand and falling commodity prices, although a number of commodities such as chemicals, iron and steel, coal and vegetable oil are still relatively good. Non-building investment has not increased significantly due to the impact of the slowdown in exports, although building investment continues. Meanwhile, consumption is predicted to remain good, supported by sustained purchasing power and public confidence. Limited domestic demand has resulted in declining imports. Going forward, efforts to boost domestic demand need to be increased to mitigate the impact of the negative impact of the world economic slowdown due to tensions in trade relations. Overall, Bank Indonesia predicts Indonesia's 2019 economic growth will 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 encourage the momentum of economic growth.

The Rupiah exchange rate as a whole is moving steadily. In May 2019, the Rupiah exchange rate weakened 0.18% point to point compared to the end of April 2019. This development was inseparable from the effect of escalating trade relations tensions which triggered risk off sentiment on global financial markets. In June 2019, the Rupiah exchange rate strengthened again by 0.04% to June 19, 2019, point to pointcompared to the final level of May 2019, and 0.69% on average compared to the May 2019 level. Positive developments in June 2019 were driven by perceptions of Indonesia's economic outlook which remained good, including an increase in Indonesia's and S & P's sovereign rating, in addition looser global monetary policy direction. This condition in turn pushed back foreign capital inflows and strengthened the Rupiah. Going forward, Bank Indonesia views the Rupiah exchange rate will move stably in accordance with the market mechanism that is maintained. 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.

Inflation in May 2019 which coincides with the month of Ramadan and before Eid ul-Fitr is under control. The May 2019 Consumer Price Index (CPI) inflation increased from 0.44% (mtm) or 2.83% (yoy) in April 2019 to 0.68% (mtm) or 3.32% (yoy). The development of CPI inflation was generally under control and matched the seasonal pattern during Ramadan and before Eid ul-Fitr, which averaged 0.77% in the past five years. Inflation volatile boosted the rising price of chili, chicken and garlic. Administered prices inflationaccording to seasonal patterns it also increases, sourced from intercity transport rates, air freight rates and train fares. Meanwhile, core inflation remained under control, despite increasing food group driven. 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 Holds Key Interest Rate at 6%

Bank Indonesia l Stefanie Moya |
6/20/2019 7:45:32 AM