Bank Indonesia keeps interest rate unchanged at 4.25 pct, likely to keep rate on hold through 2018

The Indonesian central bank, Bank Indonesia stood pat in January. BI kept the policy rate on hold at 4.25 percent, with a neutral policy stance. On the economy, the Bank Indonesia kept its growth projection for 2017 unchanged at 5.1 percent and anticipates economic growth to be in the range of 5.1 percent to 5.5 percent this year.

“Together with ongoing spending on infrastructure, we reaffirm our 2018 GDP growth forecast at 5.3 percent”, noted ANZ in a research report.

According to BI, loan growth is expected to come in at 10 percent to 12 percent this year, up from 8 percent in 2017. The central bank also stated that it would accelerate the relaxation of reserve requirements rules to improve bank’s liquidity management. Moreover, the BI also set the financing-to-funding ratio or intermediation ratio at 80-92 percent. This move will facilitate various forms of banking intermediation, particularly investment in bond markets, stated ANZ.

Increased oil prices, geopolitics and inflation are seen as risks. The central bank stated the need to manage risks from increased food prices.

“We forecast inflation to average 3.2 percent in 2018 from 3.8 percent in 2017. We continue to expect BI to keep the 7-day reverse repo rate at 4.25 percent in 2018 to support the economic recovery”, added ANZ.

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