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Bank Indonesia likely to keep policy rate on hold in November

Bank Indonesia is set to meet this week for its policy decision. According to a DBS Bank research report, the Indonesian central bank is expected to pause its rate hike and hold the 7 days reverse repo rate at 5.75 percent. Yet, another hike of 25 basis points is expected this year.

The Indonesian rupiah appreciated 3.7 percent in line with other emerging Asia with inflows of more than USD 0.4 billion in each bonds and equities. Consequently, reserves were up by USD 0.4 billion to USD 115.2 billion or equivalent to 6.2 months import and government short-term debt.

Indonesia’s widening CAD issue, a significant source of external vulnerability lately, will likely ease as oil price has returned to about USD 70/bbl, stated DBS Bank. Inflation in the nation accelerated to 3.2 percent in October in the midst of rising non-subsidized fuel prices, but still way below the central bank’s upper bound of 4.5 percent. Moreover, Fed decision to stay on hold in November gives room to Bank Indonesia to follow suit without sacrificing lower interest rate differential, a significant factor for BI decision according to the Governor in the last policy meeting.

“On the external front, imports are projected to decelerate further to 11.2 percent YoY in line with declining oil price, while exports have not fully recovered growing at 6.1 percent YoY as global demand recovery will take time to be reflected in the exports number”, added DBS Bank.

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