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Bank Indonesia (BI) is expected not to change its current monetary policy stance through 2017 and is keen to preserve the on-going stability in the bond and FX markets. The central bank’s decision to remain on hold in its July monetary policy meeting was widely anticipated, ANZ Research reported.
The decision largely displayed its cautious approach towards monetary tightening by the US Federal Reserve. Though headline inflation has also crept up, the rise has been driven by the phased subsidy reduction on electricity tariffs and seasonal factors. Core inflation continues to remain benign and, of late, household inflation expectations have also softened.
At the same time, growth conditions have remained lacklustre. Though both household and business sentiment has improved, realized activity levels remain unimpressive. The weakness in June trade numbers was also telling. During the month non-oil and gas exports and imports fell by 13.9 percent y/y and 18.7 percent y/y respectively. Though seasonal factors would have played a role, the fall was unusually steep.
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