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Bank Indonesia ups policy rate to 4.50%

May 18. 2018
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BANK INDONESIA (BI) has raised its policy rate as it seeks stability amid lingering external pressures, while hinting at further increases down the line.

The central bank's seven-day reverse repo rate was increased by 25 basis points to 4.50 per cent, while lending facility and deposit facility rates were also raised by 25 bps, to 5.25 and 3.75 per cent, respectively.

“Bank Indonesia will continue to monitor the development of the economy and is ready to undertake stronger measures to ensure macroeconomic stability is maintained,” said Bank Indonesia Governor Agus Martowardojo in Jakarta on Thursday.

As part of its policy mix, the central bank also decided to keep its counter-cyclical capital buffer at 0 per cent in a bid to maintain stability of the financial system and encourage banking intermediation.

Agus also said BI would continue its effort to maintain stability of the rupiah in accordance with its fundamental values, while pushing for market mechanism through monetary market operations directed toward ensuring sufficient liquidity in the market.

External risks 

Among external risks that the central bank has continued to monitor are the increase of the United States treasury yield and the Federal Reserve’s interest rate, the increase in the global oil price, tension between the US and China over trade, and geopolitical risks from the US decision to call off the Iran nuclear deal.

Agus said the previous policy mix and the current policy response aligned with its target to maintain inflation between 2.5 and 4.5 per cent in 2018 and 2019. 


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