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Bank of Indonesia Holds Interest Rates Steady as Inflation Slows

The Bank of Indonesia (BI) has announced that it will keep its 7-day reverse repurchase rate at 5.75%, due to a recent slowdown in inflation and a stronger rupiah. The decision to hold the interest rate steady comes after the bank raised rates by a total of 2.25% in the past year to tackle rising inflation.

BI’s decision to maintain interest rates was widely anticipated by economists and marks the first freeze since July of last year. The bank’s governor noted that Indonesia’s economic outlook has significantly improved, with inflation dropping to a five-month low in January.

This drop in inflation was attributed to lower transportation costs and the government’s efforts to supply food to markets and villages to alleviate high product prices. The governor predicts that inflation will likely return to BI’s target range of 2% to 4% in the second half of this year.

Indonesia’s central bank has been the most aggressive in Southeast Asia in terms of monetary tightening, and the recent decision to keep interest rates steady indicates a shift towards more accommodative policies. The bank’s decision was also influenced by a stronger rupiah, which has risen by around 3% against the US dollar this year.

Overall, the decision to hold interest rates steady is expected to support Indonesia’s economic recovery as it grapples with the ongoing effects of the COVID-19 pandemic.

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