Indonesia: BI left rates unchanged in May

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

Key Quotes

“Bank Indonesia (BI) left its benchmark rate unchanged at 3.50% at its May 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 consistent with the forecast for inflation to remain low, as well as efforts to maintain rupiah exchange rate stability and accelerate economic recovery.”
“BI will also continue to optimize the accommodative monetary and macroprudential policy through various policy measures…”

“BI noted that the credit growth remained sluggish due to persistent weak demand from the real sector and relatively high level of credit risk perception from banks. BI expects that loans credit will start to pick up in 2Q21, in line with rising economic growth, improving corporate performance, and further loosening of bank’s standard lending index. In 2021, credit is expected to grow by 5- 7%.”

“Going forward, we are in the view that BI will keep its accommodative monetary policy via other 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 steady at 3.50% for the rest of the year.”