Bank Indonesia likely to keep rate on hold through 2018

Bank Indonesia maintained its policy rate at 4.24 percent today, as was widely anticipated. The narrative of the policy statement and the underlying macro forecasts were widely the same as the earlier statement. The central bank projects the economic growth to come in the range of between 5.1 percent and 5.5 percent in 2018 though it was of the view that the first quarter performance is likely to be better than in the earlier few quarters. The central bank also kept its forecasts on inflation and the current account deficit at 3.5 percent and 2-2.5 percent, respectively.

Bank lending is likely to rise 10-12 percent although the January reading was lower at 8.4 percent year-on0year. But Bank Indonesia intends to further introduce macro prudential measures to boost bank lending to levels that are closer to its target.

The central bank highlighted on its focus on macro stability. It was of the view that it is significant to guard against the risk of higher U.S. interest rates or volatility in global financial markets.

“We reiterate our view that monetary policy will remain neutral with BI maintaining its 7-day reverse repo rate at 4.25 percent through 2018”, noted ANZ in a research report.

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