BI has small chance to lower key rate

Jakarta : Bank Indonesia (BI) has assured there is a small chance that it bank will lower its 7-day reverse repo rate this year due to the pressure of external risks and the need to achieve the inflation target of 2.5-4.5 percent.

BI will highly rely on other monetary instruments than key rate as well as on macro-prudential policy instruments this year, BI Governor Agus Martowardojo stated after signing a cooperation agreement on the development of sharia compliant finance here on Wednesday.

"I must speak on this occasion that there is a very small chance to adjust the 7-day reverse repo rate," he said.

BI last lowered its key rate from 4.5 percent to 4.25 percent in October 2017 due to declining inflation rate. The move to slash the key rate by 200 basis points between December 2015 and Ocotber 2017 complements the central bank?s loose monetary policy .

Agus said BI will adopt loose macro-prudential policy this year by expanding legal reserve requirements (GWM-Averaging) to foreign currency denomination at commercial banks as well as rupiah and foreign currency denomination at sharia compliant banks.

The GWM-Averaging has also been raised to 2 percent of the total GWM-Premier of 6.5 percent to third party fund for rupiah deposits at commercial banks.

He said BI must also pay more attention to inflationary pressure, particularly from volatile foods. In January 2018, the prices of rice, chilies and horticultural goods are expected to prop up inflation.

?There has been an increase in the prices of rice, chilies and horticultural goods but we warmly welcome the government?s decision to import rice. We know that the harvest season will arrive soon so that the rice price could be kept under control,? he said.

He said the external risks will come from the Federal Reserve?s plan to lower its rate, while at the same time geopolitical condition in many countries will put pressure on the stability of the money market including in Indonesia .

Source: ANTARA News

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