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Bank Indonesia surprised by cutting the interest rate by 0.25% to 5.75%. The background for this move is the small slide of inflation.

USD/IDR closed the week at 9,050, the highest since the beginning of January and higher than the 8,750 to 9,000 range seen in recent weeks.

The pair touched 9,200 during December and January – the highest levels since June 2010. 82,32 was the post crisis low, reached during June 2011.

Inflation eased to 3.65% in January, close to the bottom of the required range.The central bank in Indonesia has an inflation target of 3.5% to 5.5%. This level is similar to the actual inflation rate seen in the UK. Inflation targets in the West are lower, usually around 2%.

Indonesia enjoyed a near growth rate of 6.5% during 2011, but the Indonesian rupiah hasn’t followed. The appreciation of the currency was relatively muted.

Growth seen in recent years is attributed to the calm achieved after fighting terrorism, the new freedom and the spirit of  entrepreneurship that Indonesia has.

Further reading: Far Eastern Trouble – About Japanese and Chinese economic issues.

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