25-7-2023 (JAKARTA) Indonesia’s central bank, Bank Indonesia (BI), has kept its key policy rates steady for the sixth consecutive review, stating that the current levels were enough to ensure inflation stays within its target range this year. BI maintained the benchmark seven-day reverse repurchase rate at 5.75%, where it has been since January, as expected in a Reuters poll. Its two other rates were also unchanged.
The inflation rate in Southeast Asia’s largest economy returned to BI’s target range in May after experiencing a surge in 2020 due to rising food and energy prices. It is expected to continue to ease towards the end of this year. The decline in inflation has led some analysts to predict that BI will consider easing monetary policy to support the economy, which is expected to experience a slowdown in growth due to falling exports.
BI’s decision comes as market participants prepare for a possible US Federal Reserve rate hike later this week. The trajectory of monetary policy in the United States has impacted capital flows to Indonesia and the exchange rate of the rupiah. However, the currency has stabilised in the past week amid expectations that the Fed is nearing the end of its rate hiking cycle.
Indonesia’s annual inflation in June cooled to 3.52%, the lowest in 14 months, having peaked near 6% in September 2020. BI had raised Indonesia’s rates by a total of 225 basis points between August 2020 and January 2021.
BI maintained its 2023 economic growth outlook in a range of 4.5% to 5.3%, compared to last year’s growth rate of 5.3%.
