BI Rate unchanged

Bank Indonesia (BI) left rates unchanged at 6.50% for more than a year now but highlighting liquidity-driven inflation risks rather than the usual underlying factors, e.g. food prices or higher transportation costs.

Although there were seasonal factors that drove inflation to move slightly higher in recent months, the strengthening of the rupiah has helped to curb some of the imported inflation components.

BI also will hike the banks' reserve requirement ratio to 8% from 5% next month and by Mar 11 to order banks to set aside more reserves should their LDR falls outside the range of 78%-100%.

The hike to 10.5% effective Nov 10 (8% primary + 2.5% secondary) as realigning the level of reserve requirement prior to the loosening actions in back in year 2008. The LDR target is also consistent with the pre Oct 2008 government’s target of achieving 90% LDR.