By CentralBankNews.info
Indonesia’s central bank held its benchmark BI rate steady at 7.50 percent, along with its other policy rates, saying this stance should ensure that inflation remains under control and moves back into the bank’s target range this year and in 2015.
Bank Indonesia (BI), which raised its BI rate by 175 basis points in 2013 to curb inflation and defend its embattled rupiah currency, added that the country’s current account deficit should also narrow and this should reduce the pressure on the exchange rate.
“Monetary policy will remain consistently directed towards controlling inflation within its target corridor and bringing the current account deficit to a healthier level through interest rate policy and exchange rate stabilisation according to economic fundamentals,” the BI said.
Indonesia faced what the BI described as “a number of arduous challenges” in 2013 as a global slowdown pushed down the prices of its export of commodities, inflation jumped due to higher fuel prices and is currency dropped as investors withdrew funds following expectations that the U.S. Federal Reserve would start to wind down its asset purchases.
Economic growth is forecast by the central bank to have dropped to 5.7 percent in 2013, down from 2012’s 6.2 percent, inflation soared to 8.38 percent from 4.30 percent and the current account deficit swelled to 3.5 percent of Gross Domestic Product from 2012’s 2.8 percent.
Indonesia holds rate, sees inflation in target 2014 and 2015
But the central bank sees better times ahead, expecting an improvement in the global economy in 2014 “hence propping up the Indonesian economy looking ahead, both in terms of the trade channel and the financial channel.”
Indonesia’s inflation rate jumped in July and has remained in a range of between 8 percent and 9 percent since then. But the BI expects inflation to drop into its target corridor of 4.5 percent, plus/minus one percentage point, in 2014, and then ease further toward its 2015 corridor of 4.0 percent, plus/minus one percentage point.
The decline in economic growth last year was partly due to lower exports due to the tepid global economy but domestic demand and investments also slowed while household consumption remained the primary driver of growth, the BI said.
“Bank Indonesia considers the ongoing downward economic growth trend as conguous with the current direction of Bank of Indoenesia and Government stabilization policy instituted to bring the domestic economy back towards a healthier and more balanced growth trajectory,” the BI said.
Growth this year is forecast to strengthen to the lower end of a forecast 5.8-6.2 percent.
Indonesia’s Gross Domestic Product rose by 2.96 percent in the third quarter from the second quarter for annual growth of 5.62 percent, the fifth quarter with a declining growth rate.
