Tuesday, January 17, 2012

Bank Indonesia Widens Interbank Interest Rate Corridor

Indonesia's central bank, Bank Indonesia, widened its interest rate corridor for interbank funding (the deposit facility rate) to 200 basis points below the Bank Indonesia rate, from 150bps previously - effectively easing monetary policy settings.  The Bank said [translated]: "This is done as a step to strengthen the liquidity management of banks, by encouraging banks to transact with each other, while expected to improve the efficiency of banking. This decision is effective from Wednesday, January 18, 2012."

The Bank held its rate unchanged at its January meeting, and cut the interest rate by 50 basis points at its November 2011 meeting, and also cut the key monetary policy rate (the BI Rate) by 25 basis points to 6.50% at its October meeting.  Previously the Bank raised the BI rate by 25 basis points to the current 6.75% in February 2011.  Indonesia reported annual inflation of 4.1% in November, down slightly from 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).  

Bank Governor Nasution previously said the Bank expects "inflation next year [2012] 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 last year. 
The Indonesian Rupiah (IDR) has weakened by about 1% against the US dollar over the past year, and the USDIDR exchange rate last traded around 9,118.


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