In line with expectations, the central bank of Indonesia (Bank Indonesia) kept its benchmark BI 7-Day Reverse Repo Rate at 6.00 percent at the February policy meeting that was held on 20-21 February 2019. Also the deposit facility and lending facility rates were kept at 5.25 percent and 6.75 percent, respectively.
It is the fourth month in a row that Bank Indonesia refrained from adjusting its interest rates and that is yet another sign that the monetary tightening cycle among emerging market economies is well behind us. This cycle was allowed to end at the end of 2018 because the US Federal Reserve started to emphasize that it is to remain patient in the near future.
Monetary tightening in the USA last year (with the Federal Reserve having raised its key interest rate four times in 2018) was main reason why Bank Indonesia had to hike its benchmark rate at six occasions last year - from 4.25 percent to 6.00 percent – in an effort to reduce massive pressures on the nation’s assets (currency, stocks and bonds). Hence, a ‘dovish Fed’ brings a wave of fresh air to emerging markets. Therefore, capital inflows returned into Indonesia so far in 2019 and Bank Indonesia’s benchmark interest rate at an attractive 6.00 percent contributes to positive sentiments.
Read the full article in the February 2019 edition of our monthly research report. You can purchase the report by sending an email to firstname.lastname@example.org or a WhatsApp message to the following number: +62(0)8788.410.6944
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