In the first half of the year Bank Indonesia had cut its benchmark BI rate by one percent (gradually, yet aggressively) from 7.50 percent at the year-start to 6.50 percent as inflation and the country's current account deficit were under control, and the rupiah exchange rate was appreciating against the US dollar.

In August 2016 Bank Indonesia introduced the seven-day reverse repurchase rate (reverse repo) as the nation's new benchmark because it was regarded to influence borrowing costs and market liquidity more effectively. This new benchmark remained at 5.25 percent after the August policy meeting, implying a lower interest rate environment (although Bank Indonesia emphasized that the adoption of the 7-day reverse repo should not be seen as another act of monetary easing).

Meanwhile, the primary reserve requirement has been cut by 150 basis points since December 2015, a move that helps to release more liquidity in Indonesia's banking sector.

An example of a looser macro-prudential policy in Indonesia is the higher loan-to-value (LTV) ratio for the purchase of a house. The down payment requirement for consumers has been lowered to 15 percent (from 20 percent previously). This is hoped to boost demand for credit (mortgages). Recently, Bank Indonesia stated that it sees overall credit growth in Indonesia in 2016 at between 7 - 9 percent (y/y), a low figure for Indonesian standards. In recent years credit growth in Indonesia had gotten used to double digit numbers.

Further monetary easing should be able to boost credit growth and thus the nation's overall economic growth. Recently, however, the central bank of Indonesia slightly revised its economic growth outlook for Indonesia in 2016 to the range of 4.9 - 5.3 percent (y/y) from 5.0 - 5.4 percent (y/y) previously, a decision that was based on the government's decision to cut government spending by IDR 137 trillion this year.

A key challenge for emerging markets is monetary policy in the world's top economy: the United States. If the US Federal Reserve will decide to hike its key Fed Funds Rate then stocks, particularly in emerging markets will be plagued by a selloff, while the US dollar (and other safe haven assets) strengthen. It is still unclear whether the Federal Reserve will raise its key rate before the year-end.