Inflation in Indonesia is expected to have eased to 7.50 percent year-on-year (y/y) in January 2015 on the back of cheaper domestic fuel prices (triggered by sliding global oil prices). The month-on-month pace (m/m) in the first month of 2015 may have tumbled to near zero percent from 2.46 percent (m/m) in December 2014. Last year, Indonesian inflation had accelerated to 8.36 percent (y/y) primarily due to the implementation of higher prices for government administered low-octane gasoline and diesel in November 2014.

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The Indonesian government, central bank (Bank Indonesia) and Commission XI of the House of Representatives (DPR) agreed to revise several macroeconomic targets in the Revised 2015 State Budget (APBN-P 2015). The revisions include the country’s economic growth (GDP) pace, the average rupiah exchange rate, and inflation target. In essence, the revisions indicate that Indonesian authorities have become less optimistic about the Indonesian economy in 2015 amid external pressures.

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The current account deficit of Indonesia, which is expected to have improved slightly from 3.3 percent of the country’s gross domestic product (GDP) in 2013 to about 3 percent of GDP in 2014, is forecast to continue to improve in 2015 hence placing less pressures on the rupiah exchange rate and the economy in general. A wide current account deficit makes the country vulnerable to capital outflows in times of global shocks (for example looming higher US interest rates) as the deficit signals that Indonesia relies on foreign funding.

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The central bank of Indonesia (Bank Indonesia) decided to keep its benchmark interest rate (BI rate) at 7.75 percent at its Board of Governors’ Meeting on Thursday (15/01). The country’s Lending Facility and Deposit Facility were maintained at 8.00 percent and 5.75 percent, respectively. According to the bank this interest rate environment is sufficient to push inflation, which has accelerated to 8.36 percent year-on-year (y/y) in December due to fuel subsidy reforms, back towards its target of 3 to 5 percent (y/y) in 2015.

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Despite having intervened to support the rupiah exchange rate, Indonesia’s central bank announced that the country’s foreign exchange reserves rose USD $800 million to USD $111.9 billion at the end of December 2014. The rise was primarily due to foreign exchange income from Indonesia’s oil and gas exports as well as the withdrawal of government’s foreign debt. Tirta Segara, Executive Director of Bank Indonesia, said that foreign exchange savings and banks swaps with Bank Indonesia had also increased at the end of 2014.

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Although many currencies weakened against the US dollar after the US Federal Reserve stated that it is on track to raise its key Fed Fund Rate "somewhere next year" amid structural improvement of the US economy (after having kept the rate near zero for a "considerable time"), Indonesia's rupiah opened strong on Thursday (18/12). Based on the Bloomberg Dollar Index, Indonesia’s currency had appreciated 0.91 percent to IDR 12,553 per US dollar at 9:15 local Jakarta time.

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Indonesia’s central bank decided to keep its benchmark interest rate (BI rate) at 7.75 percent at Thursday’s Board of Governors’ Meeting (11/12). The Lending Facility and Deposit Facility were kept at 8.00 percent and 5.75 percent, respectively. The central bank is convinced that the current interest rate levels are effective to combat short-term inflationary pressures (triggered by the implementation of higher subsidized fuel prices in mid-November) pushing it back to the target corridor of between 3 and 4 percent (y/y) in 2015.

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The central bank of Indonesia projects non-performing loans (NPL) to rise to 2.4 percent of the country’s total outstanding loans by the end of the year, significantly up from 1.8 percent at the end of last year. Despite the acceleration of bad loans in Indonesia, the institution stated that it is still manageable. Meanwhile, loan growth in Indonesia is estimated to slow to 11 or 12 percent (y/y) by the end of 2014 (the slowest pace since 2010), down from 21.4 percent (y/y) in 2013 primarily due to the central bank’s monetary tightening policy.

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The central bank of Indonesia announced that the country’s foreign exchange reserves declined USD $900 million to USD $111.1 billion at the end of November 2014. The decline was primarily due to government debt repayments and the central bank’s use of foreign exchange to engage in monetary management. Meanwhile, the Indonesian rupiah exchange rate - which had touched six year lows in recent days - appreciated 0.08 percent to IDR 12,299 per US dollar on Friday (05/12) based on the Bloomberg Dollar Index.

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The latest survey of Indonesia’s central bank showed that consumer confidence fell slightly in November 2014 amid concern that the recent subsidized fuel price hike will lead to decreased business activity as well as reduced job availability in the next six months in Southeast Asia’s largest economy. Bank Indonesia’s consumer confidence index fell to 120.1 points from 120.6 points in October. The institution interviewed 4,600 households in 18 major Indonesian cities for this survey.

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In line with our projection, the central bank of Indonesia (Bank Indonesia) decided to raise its benchmark interest rate by 25 basis points (bps) to 6.00 percent after its October 2023 monetary policy meeting (held on 18-19 October 2023). Meanwhile, it also raised its deposit facility and lending facility by 25 bps, each, to 5.25 percent and 6.75 percent, respectively.

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The central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate at 5.75 percent at the two-day policy meeting on 20-21 September 2023. The lender of last resort also kept its deposit facility and lending facility rates at 5.00 percent and 6.50 percent, respectively.

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In line with expectations, the central bank of Indonesia (Bank Indonesia) kept its benchmark interest rate (BI 7-Day Reverse Repo Rate) at 5.75 percent after the two-day policy meeting on 15-16 February 2023. It also kept its deposit facility and the lending facility at 5.00 percent and 6.50 percent, respectively.

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At the latest annual meeting of Indonesia’s central bank (Bank Indonesia), this lender of last resort presented a white paper on the digital rupiah (central bank digital currency, or CBDC). Just like what is happening abroad (and likely also in response to the rise of cryptocurrencies), Bank Indonesia is eager to launch a digital rupiah, possibly ultimately aiming to gradually phase out the use of physical money (notes and coins).

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We were surprised to learn that Indonesia’s central bank (Bank Indonesia) decided to leave its interest rates unchanged at the two-day monetary policy meeting on 23-24 May 2022. The benchmark BI 7-Day Reverse Repo Rate was kept at 3.50 percent, while the deposit facility and lending facility rates were maintained at 2.75 percent and 4.25 percent, respectively. We had expected Bank Indonesia to raise its key rate by 0.25 percent to 3.75 percent at this occasion.

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In the last week of December 2021, Perry Warjiyo, Governor of Indonesia’s central bank (Bank Indonesia), sent a strong signal to markets that the benchmark interest rate of Indonesia (seven-day reverse repo rate) will not be raised before Q3-2022. This is much later than we initially expected.

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At its latest monetary policy meeting, which ended on 18 February 2021, the central bank of Indonesia (Bank Indonesia) decided to cut its benchmark interest rate (BI 7-Day Reverse Repo Rate), again, by 25 basis points (bps) to 3.50 percent, touching a historically low level.

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It came as a big surprise to us when the central bank of Indonesia (Bank Indonesia) announced on 19 November 2020 (the day it concluded its two-day monetary policy meeting) that it decided to cut its benchmark interest rate (the seven-day reverse repo rate) by 25 basis points to 3.75 percent. Bank Indonesia also cut its deposit facility and lending facility rates by 25 basis points to 3.00 percent and 4.50 percent, respectively.

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In September 2020 concern arose over whether the House of Representatives (DPR) is trying to undermine the country’s central bank (Bank Indonesia)’s independence (from the government). The DPR’s legislation body came with a bill (a draft revision of the Bank Indonesia Law) that contains a number of controversial articles, making analysts concerned about the quality of future monetary policymaking in Indonesia.

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In February 2020 all eyes were on the novel coronavirus outbreak and its impact on the global financial markets. Especially when the new virus spread across European countries toward the end of the month, market participants started selling their assets, causing huge sell-offs around the globe.

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