Bank Indonesia to Maintain BI Rate Until June 2018

Bank Indonesia to Maintain BI Rate Until June 2018

Bank Indonesia (BI) is expected to maintain its benchmark interest rate (BI Rate) at 4.25 percent until the first half of 2018. The 7-day repo rate is currently at the lowest level to encourage banking intermediation and national economic growth.

Winang Budoyo, Head Economist of Bank Tabungan Negara Tbk (BBTN), said BI has lowered its reference rate by 200 basis points (bps) since early 2016. BI’s decision to lower its BI Rate by 25 bps to 4.25 percent on September 22 2017 is in line with the Fed’s policies that kept its benchmark interest rate at 1.00 to 1.25 percent.

The Fed’s decision to reduce its balance sheet reduction has also been expected by BI as well as the market in order to avoid turmoil. BI and the government will monitor the Fed’s policies and maintain domestic macroeconomic conditions by maintaining inflation, balance of payments, and undertaking structural reforms.

As of July 2017, bank credit growth increased from 7.8 percent yoy in June 2017 to 8.2 percent yoy. “Efforts to boost credit growth will gain additional ammunition in the fourth quarter of 2017 with spatial macroprudential policy easing,” said Winang.

The decline in benchmark rate and macro-prudential policy easing will boost credit at eight to ten percent by the end of 2017 and ten to 12 percent in 2018. On the other hand, BI is expecting third-party fund growth to reach nine to 11 percent by 2017 and 2018. (*)

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