2017.01.1801:20:00UTC+00Bank Indonesia to Cut Interest Rate in January, Inflation Likely to Accelerate Slowly As Base Effect Wanes

Bank Indonesia is likely to lower its key interest rate for one last time before a long pause. According to a Societe Generale research report, the Indonesian central bank is expected to cut its interest rate by 25 basis points during its first meeting in 2017 tomorrow. This might be the last of a series of rate cuts by the central bank since 2016. Inflation in the country is likely to accelerate slowly as the favorable base impact fades and growth begins moving up with the help of increasing commodity prices.

The country’s inflation rate came in at 3.02 percent year-on-year in December, the lowest rate in seven years. This is just shy of the lower bound of the central bank’s targeted inflation corridor of 4 percent, plus or minus 1 percent. Food and administered prices have been comparatively stable in the past 12 months. Inflation in December was up just 0.42 percent sequentially, in spite of this being the traditional shopping period ahead of Christmas and New Year celebrations.

Moreover, the Indonesian rupiah has shown remarkable stability of lat and is indicating a mildly appreciating tendency. These developments are expected to provide the Indonesian central bank the confidence to opt for a final rate cut to underpin growth for the economy that is indicating nascent signs of a rise in 2016 after sub-5 percent growth in 2015, added Societe Generale.