Indonesia: BI keeps rates on hold – UOB

Economist at UOB Group Enrico Tanuwidjaja and Haris Handy review the latest BI meeting.

Key Quotes

“Bank Indonesia (BI) kept its benchmark rate unchanged at 3.50% at its July 2021 monetary policy meeting (MPC). Consequently, BI maintained the Deposit Facility rate at 2.75%, as well as the Lending Facility rate at 4.25%. BI stated that the decision is in line with the need to maintain the exchange rate and financial system stability amidst uncertainty in the global financial market, low inflation projection, as well as efforts to support economic growth from COVID-19.”

“BI expects that domestic growth will be lower than before (notably in 3Q21) following the spread of the COVID-19 delta variant, which requires the government to impose stricter mobility restriction. Nonetheless, BI predicts that growth will pick-up in 4Q21 in the light of faster vaccination program, the implementation of health protocol, continued stimulus, higher mobility, and improved export performance. Now, BI sees the economic growth at 3.5% - 4.3% in 2021 vs. 4.1% - 5.1% previously.”

“BI also reiterated that the credit growth has started to grow positively amidst flush liquidity, lower interest rates, and higher activity from household, SMEs, and corporations.”

“With the current global development, we are of the view that BI has less room to trim its benchmark rate further. Nonetheless, BI will keep its accommodative monetary policy via other monetary, macroprudential, and liquidity-supporting measures to effectively transmit the lowering of the benchmark interest rate so far into the economy. We keep our BI rate forecast to stay at current level of 3.50% for the rest of the year.”