Indonesia's Central Bank Maintains Interest Rate (BI Rate) at 7.50%
Indonesia's central bank (Bank Indonesia) kept its benchmark interest rate (known as the BI rate) at 7.50 percent in today's Board of Governor's meeting (09/01). The institution decided not to change its interest rate because it estimates that the inflation target for 2014 is not in jeopardy (4.5 percent) while Indonesia's economic growth prospects for 2014 and 2015 remain unchanged. Also the overnight lending facility as well as deposit facility rate (Fasbi) were kept at 7.50 percent and 5.75 percent respectively.
In 2013, Indonesia's inflation rate accelerated to 8.38 percent (yoy) after the government increased prices of subsidized fuels in June 2013. Since September, however, the pace of inflation has been under control and is expected to be back at a normal level in the second or third quarter of 2014 (about 4.5 percent yoy).
(annual percent change)
Source: Statistics Indonesia
The Indonesia rupiah exchange rate, however, remains troublesome and various analysts suggested that the central bank would raise the BI rate today in order to support the rupiah. After speculation emerged in May 2013 about an end of the Federal Reserve's quantitative easing program, capital outflow from Southeast Asia's largest economy quickly occurred, pushing the rupiah to a five-year low. It is still possible that Bank Indonesia will raise the BI rate once the Federal Reserve starts its tapering as an attempt to avert impact on the rupiah.