Bank Indonesia to release interest rate decision

Bank Indonesia (BI) will today release its monetary policy updates for September, with the benchmark interest rate expected to remain constant at 4% due to inflationary concerns.

While inflation in August was the lowest since May 2000, the exchange rate neared 15,000-to-one USD this month as a result of Jakarta’s reinstated stay-at-home order and proposed revisions to the Bank Indonesia Law that threaten to undermine independent monetary policy. The proposal would void legislation made in the wake of the 1997 Asian Financial Crisis and establish a new “monetary council” subject to the legislature.

Expect further fluctuation in the rupiah’s valuation in coming months as Indonesia continues to grapple with its response to COVID-19 and the new strategic framework for the US’s monetary policies takes effect. On the upside, investors should be reassured by the limited nature of Jakarta’s reinstated stay-at-home order and President Joko Widodo’s promise to refrain from interfering in monetary policy. However, expect the legislature to continue to press for changes to the Bank Indonesia Law. If implemented, Indonesia could see a decrease in foreign direct investment and a return to the 10% inflation rates of the 2010s.

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