Monetary Policy and BOP Updates, 10-Aug-11

SUMMARY

Bank Indonesia expectedly maintained the BI rate at 6.75% yesterday. Impact of recent turmoil in global financial market on domestic market would be limited, the central bank said. The bank foresees economic growth at 6.6% in the third quarter of 2011 and in the whole year. The policy makers appear very comfortable with current domestic economic condition. Not to mention the seemingly on-target inflation and higher-than-expected economic growth for 2011, BI's demeanor suggests that a change of monetary policy in the near term is unlikely. We retain our end-year BI rate forecast at 7%, recognizing that the odd for a stable rate has increased. Higher rate may be needed in the end of this year to contain inflationary pressure in 2012.

Yesterday, the central bank also revealed Indonesia's balance of payments (BOP) surplus at US$ 11.88 billion in the second quarter of 2011, the highest on record. The surplus rose from US$ 7.67 billion in the first quarter, mostly due to gargantuan flows of capital from overseas. It is worth noting that the surplus in current account fell to the lowest since 2009.