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Indonesia leaves monetary policy unchanged

Staff Writer |
Bank Indonesia left its 7-day reverse repurchase rate unchanged at 5.75 percent on October 23rd, after two consecutive hikes and matching market expectations.

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Policymakers said the decision to pause the tightening was consistent with efforts to reduce the current account gap and maintain the attractiveness of the domestic financial market.

The he decision is consistent with ongoing efforts to reduce the current account deficit within a manageable thresholdlending and the deposit facility rates were also left steady at 6.5 percent and 5 percent respectively.

Excerpts from the Bank Indonesia Press Release:

"T, while maintaining the attractiveness of domestic financial markets, thereby bolstering external resilience in Indonesia against a backdrop of persistently high global uncertainty.

"Bank Indonesia constantly implements a monetary operations strategy oriented towards maintaining adequate liquidity in the Rupiah market and foreign exchange market, while also effectively commencing the Domestic Non-Deliverable Forwards (DNDF) on 1st November 2018.

"Bank Indonesia is always strengthening policy coordination with the Government and other relevant authorities in order to maintain economic stability and reinforce external resilience, including stimulating exports and lowering imports, which will reduce the current account deficit to 2.5% of GDP projected in 2019.

"Moving forward, Bank Indonesia will monitor prevailing economic developments, such as the current account deficit, exchange rates, financial system stability and inflation, as follow-up measures to maintain macroeconomic and financial system stability.

"The Rupiah is undergoing depreciation, albeit with contained volatility. The Rupiah depreciated in September, continuing into October 2018, in line with currencies of other peer countries. On average, the Rupiah depreciated 2.07% during September 2018, and continue to slightly depreciate in October 2018.

"As of 22nd October 2018, the rupiah had depreciated by 10.65% (ytd), which is not as severe as that felt in Brazil, India, South Africa and Turkey.

"Looking ahead, Bank Indonesia will continue to stabilise Rupiah exchange rates in line with the currency’s fundamental value, while maintaining market mechanisms, supported by financial market deepening.

"Such policy is focused on mitigating Rupiah volatility and sustaining adequate market liquidity, thus preventing risks to macroeconomic and financial system stability."

Inflation forecasts remain unchanged at 3.5±1 percent for 2018; but Bank Indonesia projects economic growth to be at the lower range of 5.0-5.4% (yoy), impacted by a decrease in net exports.

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