Indonesia’s central bank left its key interest rate unchanged for a ninth straight month in November, but lowered the reserve requirement, saying that there was scope for policy easing as economic activity stabilizes.
The Board of Governors of Bank Indonesia held the key policy rate steady at 7.50 percent, in line with economists’ expectations. The deposit facility rate was held at 8 percent.
Meanwhile, the rupiah reserve requirement for lenders was reduced to 7.5 percent from 8 percent.
The bank expects inflation to remain at the lower limit of its 3-5 percent target range and the current account deficit to be about 2 percent of GDP this year. Growth is expected to improve further in the final three months of the year.
Citing the high uncertainty in the global financial markets, mainly due to a possible interest rate hike in the U.S. and the diversified measures adopted by the European Central Bank, the Bank of Japan and the Chinese central bank, Bank Indonesia said it will remain cautious in taking further policy steps.
The policy easing through the reduction of reserve requirement is expected to increase the capacity of bank financing to support economic activity.
“The decision to cut reserve requirements as well as dovish comments which accompanied the announcement suggests that a rate cut may not be far off,” Capital Economics Asia economist Gareth Leather said.
The bank may also have been encouraged by the recent performance of the rupiah, which has been broadly stable since last month’s sudden appreciation against the US dollar, the economist added.
The material has been provided by InstaForex Company – www.instaforex.com