Indonesia leaves policy rate unchanged for 3rd time

Indonesia’s policy rate was kept unchanged by the country’s central bank for a third meeting in a row on Tuesday. The seven-day reverse repo rate of the country remained unaltered at 5.75%, the highest since July 2019. Additionally, the deposit facility rate and lending facility rate were also left untouched at 5% and 6.50% respectively.

This is in line with predictions by experts who had claimed that Indonesia policy rate would remain unchanged for the entirety of 2023. “This decision is consistent with the preemptive and forward-looking stance of monetary policy to ensure the continued decline in inflation,” Bank Indonesia Governor Perry Warjiyo told reporters on Tuesday.

Indonesia policy rate in response to inflation

Meanwhile, Indonesia’s inflationary pressures are diminishing, as the nation’s annual inflation rate has shrunk from 5.47% in February to 4.97% in March. Furthermore, the country’s central bank, Bank Indonesia (BI), projects inflation rates to return to its target range of 2% to 4% by September 2023.

Previously, BI had tightened policy rates by 225 basis points between August 2022 and January 2023. Since February, Indonesia policy rate has remained unchanged.

“Both headline and core inflation have slowed since peaking late last year, allowing the central bank to pause at its meeting last February, BI expects the global recovery to continue, retaining its 2.6% year-on-year growth forecast,” said ING.

“Against this backdrop, our base case would be for Warjiyo to extend his pause until the third quarter before carrying out rate cuts to help support the ongoing economic recovery,” it added.

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By keeping Indonesia policy rates unchanged, the country has joined the ranks of other Asia-Pacific countries like Australia and Malaysia who have kept key policy rates unchanged in March 2023.

All in all, BI expects Indonesia’s GDP to grow at a rate of 4.5%-5.3% in 2023, fuelled by a rise in consumption, investment outlays, and a strong trade sector.