MNI STATE OF PLAY: Bank Indonesia: Economy Backs Rate Outlook

Indonesia's central bank meets this week with growing confidence that a benign inflation outlook combined with a record high trade balance and a stable currency can be the launchpad for economic recovery in 2022.

Bank Indonesia is not expected to change its benchmark interest rate, which has been held at a record low of 3.5% this year after 150 basis points of cuts in 2020.

With the economy re-opening and economic activity accelerating, BI's policy response to the pandemic is winding down and while Governor Perry Warjiyo has ruled out a rate rise this year, the next move in rates is likely to be a hike some time in 2022, see MNI INSIGHT: Indonesia Builds Resilience Against 'Tantrum'.

RUPIAH CONCERNS EASE

The rupiah, a constant concern for the central bank, has firmed in November to around 14,185 against the USD this week with inflation in check and the growth outlook picking up.

BI this week projected November inflation at a stable annualised 1.63%, against the bank's target range of 2% to 4%.

The economy is currently being boosted by higher commodity prices, with surging exports sending the trade balance to a record high of USD5.7 billion, even as imports jumped by 52.1% and officials have consistently been confident on pandemic recovery.

Third quarter GDP growth was disappointing, at 3.51%, but with more than 200 million vaccinations administered through the nation the economy is seen as well placed to continue to rebound in the final quarter and into 2022. Manufacturing data for October was strong and consumer sentiment is positive.

BI's policies have shifted from monetary policy and buying government bonds to prudential measures, such as easing restrictions on borrowing to purchase automobiles and property.

The interest rate decision from the BI Board of Governors will be announced Thursday afternoon in the Asian time zone.