Bank Indonesia defends mixed-rate move as a coordinated monetary strategy

Bank Indonesia responded to market criticism by explaining that its recent policy bundle is designed to synchronize the policy rate with its operational tools. The benchmark rate remained unchanged, but the overnight deposit facility rate was increased, bringing both deposit and lending facilities to a 75-basis-point spread from the benchmark. The bank also outlined a plan to cut reserve-requirement ratios by a total of 200 basis points by December, which will bring the effective reserve ratio down to around two percent, adding an estimated 90 trillion rupiah of liquidity.

Officials said the extra liquidity is modest and consistent with one outlet rate and economic activity. Additionally, the central bank is encouraging banks to favor short-dated instruments over holding excess funds in SRBI securities, whose outstanding amount has fallen below 950 trillion rupiah. While Bank of America economists first described the package as “hold, hike and cut all at once,” they later noted the measures are not contradictory and the RRR cuts do not signal a reduced readiness to hike rates if required.