Bank Indonesia holds main rate at 5.75%, raises deposit facility rate and cuts bank reserve requirements

Bank Indonesia held its benchmark BI-Rate at 5.75% after its board meeting on 20-21 October, the central bank said in a statement on Wednesday. It kept the lending facility rate at 6.50% and raised the deposit facility rate to 5.00%, a 25 basis point rise, according to Reuters.

Reuters said the decision to hold the main rate was expected by 15 of 29 economists in its poll, while the rest had expected a rise of at least 25 basis points. It was the fourth straight meeting at which the BI-Rate was unchanged. The bank raised rates by a total of 100 basis points in three moves between May and June, Reuters said.

Bank Indonesia also said it would cut the average rupiah reserve requirement for conventional banks from 9% to 7% in two steps, on 1 November and 1 December, and for sharia banks from 7.5% to 5.5%. It said the measures were intended to stabilise the rupiah and keep inflation within its 2.5% plus or minus 1% target range.

The bank said the rupiah was at 17,985 per US dollar on 20 October, 0.61% weaker than at the end of September, citing tensions in the Middle East, tighter US monetary policy and foreign investor sentiment in the stock market. Reuters reported that the currency was near an all-time low and that Indonesian shares had fallen sharply after index provider MSCI warned they could be moved to “standalone” status.

For the MSCI proposal, see our earlier report.