MACROECONOMIC ANALYSIS SERIES BI Board of Governor Meeting October 2017

Last month’s rate cut, the second time in a row, seems to be a long overdue response to already apparent weakness in domestic demand, which shows elevated risks of inflation approaching lower bound or even below BI’s target (4±1%). From domestic side, somewhat stabilized core inflation points to potential rebound in domestic consumption, even if credit growth is still below 10%. From external side, we now also see that major central banks have shown firmer signal to normalize monetary policy. We expect no policy rate change in the US until December. This allows Bank Indonesia to leave its policy rate unchanged while maintaining its ability to swiftly respond to changes in economic data or new developments in coming months.

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