JAKARTA (TheInsiderStories) – Indonesian central bank Bank Indonesia (BI) decided to leave its benchmark interest rate — BI 7-Days Reverse Repo rate – unchanged at 4.25 per cent on Thursday (22/3). This step is consistent with the Bank’s efforts to maintain macroeconomic stability and financial system and contribute to the recovery of the domestic economy.
This decision was taken after the first policy meeting under new U.S Federal Reserves‘s (Fed) Chairman Jerome Powell, raised the interest rate target range by 0.25 per cent to a new band of 1.5-1.75 per cent. This move puts the effective Fed funds rate at around 1.63 per cent, the highest since September 2008.
“We expect Fed Fund Rate to rise three times this year. Based on their summaries projection, there are several significant growth indication in economic growth and unemployment rate, yet there is no change in the inflation side,” said Economy and Monetary Director of BI Yoga Affandi. He added that following the U.S’s central bank’s decision, BI will keep its neutral stance policy .
U.S labour market has continued to strengthen and that economic activity has been rising at a moderate rate. The U.S. job gains averaged 240,000 per month over the past three months, well above the pace needed in the longer run to absorb new entrants into the labor force. The unemployment rate remained low in February at 4.1 percent, while the labor force participation rate moved higher.
Global economic growth in 2018 is expected to increase and followed by rising world commodity prices. The increase in global economic growth stems from improved economies of developed and developing countries that are stronger than originally forecast.
The Indonesian economy continues to show improved performance with a more balanced structure. Realized quarterly GDP growth of third quarter (Q3) of 2017 rose by 5.19 per cent on annually basis (YoY) compared to 5.06 per cent in the preceding quarter, indicating the ongoing recovery of the domestic economy.
The improvement in economic growth is also supported by a stronger structure with investment and exports as the main source of growth. Investments grew quite high by 7.27 per cent (YoY) driven by an increase in building investment in line with continued infrastructure development and rising non-construction investment in anticipation of an upswing in demand.
“We expect the domestic growth to reach 5.1 per cent (YoY) in the first quarter of this year, supported by rising investment and consumption,” said Affandi.
The rise of investment is mainly driven by the construction sectorsector and an improvement in primary sector as well as increasing external demand.
Private consumption grew steadily supported by maintained public purchasing power and increased election-related expenditures. Government consumption increases with the acceleration of social aid and village funds programs.
From the external side, exports are expected to grow positively influenced by the increase of world economic growth. Meanwhile, imports are also expected to increase especially related to investment and export needs with high import content.