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Senin, 12 September 2011

Benchmark rate unchanged ; yet lower bound rate reduced by 50 bps - Mandiri

As recent inflation remains manageable combined with an uncertain global condition, the central bank decided to keep its policy rate unchanged at 6.75% in yesterday’s board meeting. Interestingly, BI also decided to lower floor corridor for their overnight deposit facility (FASBI O/N) to 5.25% from 5.75% in order to boost interbank market activity. However, we believe that this action could also trigger expansionary space for higher credit growth.

Although the central bank took loosening action, at this juncture we still believe the central bank will keep benchmark rate at 6.75% for the remainder of the year and will hike the benchmark rate by 50bps next year, as the government likely delay the policy to limit fuel subsidy consumption next year. We expect inflation to reach 5.1% and 6.3% in 2011 and 2012 respectively.

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