Indonesia holds rate, notes rising inflation expectations
November 13, 2014
By CentralBankNews.info
Indonesia’s central bank maintained its benchmark BI rate at 7.50 percent, as expected, but said it remained vigilant of rising inflation expectations from the government’s planned increase in fuel prices and would adopt a number of policies, including strengthening coordination with central and local governments, to ensure the impact on inflation remained “controlled and temporary.”
Bank Indonesia (BI), which has maintained rates since November 2013, also said inflation remains under control and is continuing to follow a downward trend, bolstering the prospect of meeting the 2014 inflation target of 4.5 percent, plus/minus one percentage pony.
Indonesia’s headline inflation rate rose to 4.83 percent in October from 4.53 percent in September while core inflation eased to 4.02 percent from 4.04 percent.
Indonesia’s government plans to raise prices of subsidized gasoline and diesel this month to help reduce the current account deficit.
Last year the BI raised rates in response to the government’s planned reduction in fuel subsidies at the same time that the country, along with other emerging markets, experienced a sudden surge in capital outflows, and thus downward currency pressures, due to expectations that the U.S. Federal Reserve would start to trim its asset purchases.
The central bank said domestic economic growth has been decelerating in line with weak global demand, with investment activity remains weak and exports have contracted. But growth in Eastern Indonesia has accelerated as mineral exports resumed and growth in Java remains high as manufacturing exports have continued to expand.
For 2014, economic growth in Indonesia is still projected in the lower end of a 5.1-5.5 percent range before rising to 5.4-5.8 percent in 2015.
Indonesia’s current account deficit narrowed to US$ 6.836 billion in the third quarter from $8.689 billion in the second quarter, mainly due to a significant surplus in non-oil and gas balance and positive manufacturing exports and recommenced exports of unrefined mineral exports.
BI said it expects the current account deficit to continue to improve in line with robust manufacturing and mineral exports as well as controlled oil and gas imports.
In the third quarter, Indonesia’s foreign exchange reserves rose to $112.0 billion, equivalent to 6.6 months of imports.
Bank Indonesia issued the following statement: