In Bank Indonesia's Board of Governors' meeting - held on Thursday (12/12) - it was decided to keep the country's benchmark interest rate (BI rate) at 7.50 percent. Executive Director of Bank Indonesia's Communication Department Difi A. Johansyah said that the current rate of 7.50 percent is in line with the institution's inflation target of 4.5 percent (plus or minus one percent). The lending facility and deposite facility (Fasbi) rates are also maintained at 7.5 percent and 5.75 percent respectively.
Various analysts expect the central bank to raise its BI rate early next year (by 50 bps) to offset the impact of the winding down of the Federal Reserve's quantitative easing program. The tapering is expected to result in a capital outflow from emerging economies.
Most market participants will be content with Bank Indonesia's decision to maintain its rate at 7.50 percent. During the first stock trading session on Thursday (12/12), Indonesia's benchmark stock index (IHSG) fell 1.11 percent amid concern about the outcome of the Board of Governors' meeting. In the second trading session, the IHSG is reducing its loss. At 14:30 (Jakarta time), the index was down 0.71 percent.
The Indonesia rupiah exchange rate, however, fell sharply after Bank Indonesia's announcement. According to the Bloomberg Dollar Index, the rupiah was down 0.48 percent to IDR 12,048 per US dollar at 14:33:54 Jakarta time, while Indonesia's currency had appreciated to IDR 11,948 one hour earlier.