Bank Indonesia leaves key reference rate unchanged, revises down 2016 growth outlook

Bank Indonesia has kept its policy instruments on hold, while stating that the transmission of monetary policy is rebounding. The Indonesian central bank kept the reference rate unchanged at 6.75%, the deposit facility at 4.75% and the 7-day reverse repo at 5.5%. There was a slight threat to today’s central bank’s policy decision from a somewhat weaker-than-anticipated first quarter GDP figure. It is evident that the country’s macroeconomic policy is not still at the current stage, said ANZ in a research report. It is actually changing dynamically.

Meanwhile, the central bank has given a clear hint of an easing bias. It mentioned that under the scenario of a stable economy, meaning economic and rupiah stability, the central bank will have the leeway to ease policy, added ANZ. Easing bias, along with a rebounding monetary policy transmission mechanism might be a strong combination.

Also, the Bank Indonesia revised down its 2016 economic growth outlook to 5%-5.4% from its earlier projection of 5.2%-5.6%. If the economy and rupiah stabilize, along with inflation rate meeting the mid-point target, the central bank will have a scope to further easy policy to strengthen lending and hence making the outlook of growth more secure, according to ANZ.