In line with markets' expectation the central bank of Indonesia (Bank Indonesia) kept its benchmark reference interest rate (BI rate) unchanged at 7.50 percent on Thursday (18/06). Bank Indonesia remains committed to its relatively tight monetary stance in a bid to combat accelerated inflation, limit the country's wide current account deficit, and support the ailing rupiah. The central bank also kept its overnight deposit facility rate (Fasbi) and lending facility rate at 5.50 percent and 8.00 percent, respectively.
It was the fourth consecutive month that Indonesia's central bank left its interest rate regime unchanged. Although blocking accelerated economic growth in Southeast Asia's largest economy, the high interest rate environment is needed to combat inflation which accelerated to 7.15 percent (y/y) in May 2015 and to defend the rupiah which has lost around 7 percent against the (bullish) US dollar ahead of looming further monetary tightening in the USA before the year-end (higher US interest rates). Meanwhile, higher borrowing costs are regarded as a medicine to remedy the country's wide current account deficit.