Asia’s fifth largest economy has held rates at 6.5 per cent. Indonesia is bucking the regional trend of rate increases: the central bank has not raised rates since October 2008, and they have been flat for almost a year, since August 2009. Holding rates is consistent with the current inflation target of 5 per cent +/- 1 per cent: current y-o-y inflation is running at 4.16 per cent.
By Joe Cochrane
Members of Indonesia’s House of Representatives have certainly been a surly bunch. They spent more than three months investigating the government’s controversial bail-out of ailing state lender, PT Bank Century, back in 2008, before voting that it was “illegal” in March.
The members then set their sights on the country’s internationally respected finance minister, Sri Mulyani Indrawati, who approved the bail-out. Like sniping jackals, the veteran lawmakers hounded her so relentlessly – there were personal attacks in the media and boycotts of sessions to discuss budget issues – that Mulyani had enough and bolted to the World Bank, where she is now a managing director. Read more
As expected, and in order to keep inflation within its target range of 4 to 6 per cent.
Indonesia’s central bank today decided to hold the Bank Indonesia (BI) rate at 6.5 per cent, saying the level was consistent with the 2010 inflation target of 5% ± 1%. Inflation in 2009 was recorded at 2.78 per cent, well below the target of 4.5% ± 1%. The Board sees little likelihood of renewed inflationary pressure in the first half of 2010.
The monetary policy operational target is reflected in movement in the interbank overnight rate. It is expected that bank deposit rates will track the movement in interbank rates, with bank lending rates following suit.