Indonesia cuts key rate for fourth month to spur economy


  • Economy
  • Thursday, 24 Oct 2019

Bank Indonesia lowered the seven-day reverse repurchase rate by 25 basis points to 5% Thursday, as predicted by 23 out of 30 economists surveyed by Bloomberg.

JAKARTA: Indonesia’s central bank cut its key interest rate for a fourth straight month to spur the economy amid a deteriorating outlook for global growth.

Bank Indonesia lowered the seven-day reverse repurchase rate by 25 basis points to 5% Thursday, as predicted by 23 out of 30 economists surveyed by Bloomberg. The rest had forecast no change.

"The decision is in line with an inflation estimate that remains under control and investment yields that remain attractive, also as a pre-emptive step to push the domestic economy amid slowing global economy, ” Governor Perry Warjiyo told reporters in Jakarta.

The latest round of easing comes after the International Monetary Fund revised down its forecast for global growth and cut its 2019 projection for Indonesia to 5% from 5.2% in July. Despite signs of an impending deal between the U.S. and China, the trade war between the two behemoths is continuing to weigh on Indonesia’s economy, which grew at its slowest pace in two years in the second quarter.

At the same time, Indonesian policy makers remain comfortable with a relatively subdued inflation environment that has allowed them to lower borrowing costs since July. Consumer prices rose 3.39% in September from a year ago, well within Bank Indonesia’s target band of 2.5%-4.5% for this year.

The central bank kept its economic forecasts broadly unchanged from last month:

Gross domestic product growth is seen below the midpoint of the 5%-5.4% forecast range, and is set to move toward the midpoint of a 5.1%-5.5% range for 2020.

Inflation will likely be below the midpoint of its 2.5%-4.5% target range for this year, and stay within the 2%-4% range in 2020.

The current-account deficit should be around 2.5%-3% of GDP this year and next.

"BI’s rate cut today was no surprise given the combination of sluggish growth, benign inflation and a reasonably stable” rupiah, said Krystal Tan, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. "As long as external stability is maintained, the bias is probably toward a deeper easing cycle.”

The Jakarta Composite Index was little changed after the decision, up 1% as of 2:39 p.m. local time.

Bank Indonesia raised interest rates by 175 basis points last year as it battled an emerging-market rout that was pressuring the currency, but this year its focus has shifted to supporting growth. The rupiah has gained more than 2% against the dollar this year.

The current-account deficit, which widened to 3% of gross domestic product in the second quarter, remains a key vulnerability for the economy. Indonesia posted a surprise trade deficit of $160.5 million in September but overall the trade balance has been improving. - Bloomberg


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