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Bank of Indonesia Shifts Policy as They Surprise the Markets With a 25bp Cut
Thursday, 04 December 2008 06:18:53 GMT  |  DailyFX Research
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The Bank of Indonesia unexpectedly trimmed its one-month rate (SBI) by 25 bps to 9.25% at its policy meeting Thursday. It hiked rates 6 straight months through October in an effort to contain inflation, and November CPI narrowed to 11.7% y/y from 11.8% y/y, rising by a modest 0.1% m/m NSA, the smallest m/m increase in 18 months. CPI will likely decline m/m in December, on the partial rollback of the earlier hike in the administered fuel prices that had sent the CPI soaring above 12.0% y/y. The central bank hopes to repeat the process from 3 years ago, when after tightening rates following sharp adjustment in fuel prices, it was able to contain inflation, and subsequently gradually reverse the hike in interest rates. Still, the cut was a surprise, just a day after deputy governor Miranda Goeltom warned it would be a "big mistake" to cut rates while inflation remained high.

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