MACROECONOMIC ANALYSIS SERIES. BI Board of Governor Meeting, June 2018

Stronger signal that the Fed will increase Fed Funds rate four times in 2018 and persistent trade deficit in May put additional strains on Rupiah in recent weeks. Despite relatively weak inflation and growth figure, change in Bank Indonesia’s stance to tighten monetary policy is appropriate given current circumstances. The decision to tighten monetary policy is taken amid increase in vulnerability to negative external factors, such as trade war between US and China and European Union, increase in crude oil price in the last 12 months, and price volatility of key export commodities. We see BI’s signal to lift 7-days reverse repo rate this Thursday, along with maintaining direct intervention in forex market, to be the most appropriate policy direction going forward.

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