Indonesia resumes rate cuts amid growing concerns over virus


  • Economy
  • Friday, 21 Feb 2020

​​​​​​​The central bank on Thursday lowered its forecast for global growth to 3% from 3.1%, and sees the domestic economy expanding 5%-5.4% this year.

JAKARTA: Indonesia’s central bank cut its benchmark interest rate after a three-month pause as the spread of the coronavirus threatens growth in South-East Asia’s biggest economy.

Bank Indonesia lowered the seven-day reverse repurchase rate by 25 basis points to 4.75% yesterday, joining a string of other central banks around the region that have eased policy in recent weeks to counter the impact of the virus.

Nineteen of the 31 economists in a Bloomberg survey predicted the central bank’s move while the rest saw no change.

Indonesia is yet to record a single case of the deadly virus but officials have become increasingly worried about a slump in trade and tourism after China shut factories to contain the outbreak and both countries restricted travel.

Bank Indonesia’s resumption in rate cuts after four reductions last year comes on top of a fiscal boost from the government to cushion the economy, which was already slowing last year because of the US-China trade war.

The central bank on Thursday lowered its forecast for global growth to 3% from 3.1%, and sees the domestic economy expanding 5%-5.4% this year.

Finance Minister Sri Mulyani Indrawati said on Wednesday the virus outbreak will curb growth and put government revenue under pressure. The Trade Ministry has also warned of a deeper hit to exports, which alreadly slumped in January, putting the current account deficit at risk.

While inflation has so far remained subdued, coming in at 2.7% in January, supply disruptions in China are pushing up some food costs, like garlic, which surged almost 70% in Jakarta in just one week.

A relatively stable currency provides the central bank with sufficient room to ease policy now. — Bloomberg

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