Bank Indonesia Keeps Key Interest Rate at 7.50% in November Policy Meeting
Bank Indonesia Governor Agus Martowardojo announced during a press conference that the central bank kept its benchmark interest rate (BI rate) at 7.50 percent during the Board of Governor's Meeting on 17 November 2015. Meanwhile, Bank Indonesia maintained the deposit facility rate and the lending facility rate at 5.50 percent and 8.00 percent, respectively. The current interest rate environment is considered sufficient to face persistent global uncertainties caused by the looming Fed Fund Rate hike and sluggish economic growth in the Eurozone and China.
As such, the central bank ignored requests from the business community as well as from Vice-President Jusuf Kalla to cut the interest rate in order to make way for accelerated economic growth.
Governor Martowardojo also said that inflation and the current account deficit are improving. Inflation is expected to touch the lower end of Bank Indonesia's target range of 3-5 percent (y/y), while the current account deficit is projected to improve to 2 percent of the country's gross domestic product (GDP) by the year-end. Indonesia's annual inflation pace eased to 6.25 percent (y/y) in October 2015. Last week it was reported that Indonesia's current account deficit improved to USD $4.01 billion, or 1.86 percent of GDP, in the third quarter of 2015. The central bank has now kept its BI rate at 7.50 percent since February 2015.
However, Bank Indonesia did ease monetary policy as it lowered the primary minimum statutory reserves (Giro Wajib Minimum Primer) from 8.00 percent to 7.50 percent (effective per 1 December 2015), hence providing more room for local banks to lend thus boosting economic activity.
Bank Indonesia's next Board of Governor's meeting is scheduled for 17 December 2015, one day after the Federal Reserve's crucial two-day policy meeting has ended (15-16 December).
When the results of the latest policy meeting were announced, markets had already closed in Indonesia. The benchmark stock index (Jakarta Composite Index) rebounded 1.32 percent to 4,500.95 points, while the rupiah appreciated 0.02 percent to IDR 13,746 per US dollar (Bloomberg Dollar Index).