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Jakarta Post

Policy rate and banking liquidity

  • Haryo Kuncoro

Jakarta   /   Fri, November 15 2019   /  01:45 am

For four consecutive months, Bank Indonesia (BI) has cut its benchmark interest rate, the BI seven-day reverse repo rate, by 100 basis points (bps) to 5 percent. BI’s aggressiveness in easing its money policy is not without reason. First, the inflation rate remained under control, estimated at the range target of 2.5 to 4.5 percent throughout this year. Second, investment returns on domestic financial assets are still attractive to foreign capital. Portfolio capital inflows until early October reached Rp 192.6 trillion (US$13.3 billion).Third, the position of foreign exchange reserves at the end of September was recorded at $124.3 billion, equivalent to financing 7.2 months of imports or seven months of imports plus payment of government foreign debt. This amount is above the international adequacy standard of thee months of imports.Fourth, the exchange rate also shows stability. In Oc...