Indonesia’s maintained its benchmark 7-day Reverse Repo Rate at 4.25 percent, saying the domestic economy is continuing to grow “with a more equitable and balanced structure” and the current interest rate is sufficient to keep inflation in line with the target range and the current account at a healthy level.
Bank Indonesia (BI), which has cut the rate twice this year by a total of 50 basis points, added it was aware of both global and domestic risks, including “limited growth in household consumption and banking intermediation,” and the risks from a tightening of monetary policy in several developed economies.
Based on rising exports and investments, BI raised its 2018 growth forecast slightly to between 5.1 – 5.5 percent from a previous 5.0 – 5.5 percent.
Noting improved growth in the third quarter of this year, BI estimated 2017 growth of around 5.1 percent compared with its previous estimate of 5.0-5.4 percent.
Indonesia’s Gross Domestic Product grew by an annual rate of 5.6 percent in the third quarter, up from 5.01 percent in the previous two quarters, boosted by higher exports and rising commodity prices, while investments rose to the highest level since the second quarter of 2013 based on construction and non-construction investment.
BI also sounded optimistic about global growth, saying strong exports and domestic demand are driving China’s economy and restoring consumer confidence while the outlook for economic growth in both Japan and Europe have been upgraded.
“Meanwhile, tenacious consumption and increasing investment contributed to the US economic gains,” BI said.
Indonesia’s inflation rate remains low, with headline inflation easing further to 3.58 percent in October from 3.72 percent in September, with BI expecting inflation around 3.0-3.5 percent by the end of this year, within the lower end of its target range of 4.0 percent, plus/minus 1 percentage point.
For 2018 BI expects inflation to remain within next year’s target range of 3.5 percent, plus/minus 1 percentage point.
As many other currencies, Indonesia’s rupiah depreciated in October due to a rise in the U.S. dollar and was trading at 13,526 today, down 0.2 percent this year.
Bank Indonesia issued the following statement: