Bank Indonesia keeps key interest rate unchanged, likely to adopt wait-and-see stance

Bank Indonesia has maintained its 7-day reverse repo rate at 6 percent, as was widely anticipated. Today’s decision is the fourth straight meeting that BI has kept its interest rate on hold. The central bank also continues to expect GDP growth of 5 percent to 5.4 percent in 2019 and expectations inflation at the lower half of its 2.5 percent to 4.5 percent target band.

Bank Indonesia had a cautious tone and repeated its focus on external resiliency and commitment to lowering the current account deficit. The Indonesian central bank is turning to other accommodative macroprudential measures to underpin economic activity instead, noted ANZ in a research report.

The recent trade data imply the pressure on the current account deficit has eased a bit. Although the trade deficit broadened in January, the trade balance moved back into surplus in February for the first time in five months as a sharp drop in imports more than countered the fall in exports. However, achieving the central bank’s 25 percent of GDP current account deficit target this year is expected to prove difficult against the backdrop of subdued exports, said ANZ.

“While we cannot completely rule out the possibility of rate cuts this year, our base case is for BI to adopt a wait-and-see stance, before unwinding some of its earlier rate hikes in 2020”, added ANZ.