Tuesday, October 11, 2011

Bank Indonesia Cuts Interest Rate 25bps to 6.50%

Indonesia's central bank, Bank Indonesia, dropped the BI reference rate 25 basis points to 6.50% from 6.75%.  Bank Indonesia Governor, Darmin Nasution, said: "We are bringing the policy rate to a level that is more reasonable," further noting "we saw the 6.75 percent rate as too high, unless we estimated inflation next year to be very high."  Nasution also noted the impact of global conditions; "The global crisis has not hit our real sector except for the financial market," and pointed out that "Private consumption and investment remain the driver in economic growth."

At its September meeting, the Bank held the key monetary policy rate (the BI Rate) unchanged at 6.75%.  Previously the Bank raised the BI rate by 25 basis points to the current 6.75% in February 2011.  Indonesia reported annual inflation of 4.61% in September, compared o 4.79% in August and July, 4.61% in June, 5.98% in May, 6.16% in April, and 6.65% in March, and just inside the inflation target of 5% +/-1% in 2011 (which changes to 4.5% +/-1% in 2012).  

Nasution said the Bank expects "inflation next year will be below 5%".  Bank Indonesia has previously forecast GDP growth of 6.3-6.8% in 2011 and 6.4-6.9% in 2012 for the Indonesian economy, meanwhile Indonesia reported annual GDP growth of 6.5% in the June quarter this year.  

The Indonesian Rupiah (IDR) has gained about 1% against the US dollar so far this year, and the USDIDR exchange rate last traded around 8,995.


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