Indonesia: BI kept rates on hold – UOB

Enrico Tanuwidjaja, Economist at UOB Group, Haris Handy and Yari Mayaseti review the recent interest rate decision by the Bank Indonesia (BI).

Key Takeaways

“Bank Indonesia (BI) left its benchmark rate unchanged at record low of 3.50% at its September 2021 monetary policy meeting (MPC) as the economy continued to recover from the country’s worst COVID-19 wave. The benchmark rate has been at that level since February, and BI has signaled the bank could remain on hold at least until year-end. 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 consistent with the need to maintain the exchange rate and financial system amid low inflation, projected low inflation and efforts to revive economic growth.”

“Bank Indonesia continues to optimize its policy mix towards maintaining macroeconomic and financial system stability…”

“BI also remained confident that IDR will stabilize in-line with fundamentals in the coming months. The outstanding performance of exports will certainly help to support the external account and bolster IDR, as the trade surplus persist. Nonetheless, BI kept its previous current account deficit forecast at 0.6% - 1.4% of GDP.”  

“The emergence of 2^nd COVID-19 wave led by the Delta variant forced the government to enforce stricter social restriction in July and August, slowing the growth momentum.  However, with the daily cases now more under control, the recovery pace is getting back on track. With the inflation still below the 2% 4% of the central bank’s target range, BI will have the policy space to remain accommodative to support the economic recovery. We keep our Bi rate forecast to stay at current level of 3.50% for the rest of the year.”