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Indonesia central bank cuts key rate to 5.0%, fourth trim in a row

Kamis, 24 Oktober 2019 / 15:23 WIB
Indonesia central bank cuts key rate to 5.0%, fourth trim in a row
ILUSTRASI. Bank Indonesia (BI) lowered the 7-day reverse repurchase rate by 25 basis points (bps) to 5.00%. ANTARA FOTO/Sigid Kurniawan/aww.

Sumber: Reuters | Editor: Wahyu Rahmawati

KONTAN.CO.ID - JAKARTA. Indonesia's central bank stepped up efforts to boost Southeast Asia's largest economy on Thursday by cutting its benchmark interest rate for the fourth time in four months.

Bank Indonesia (BI) lowered the 7-day reverse repurchase rate by 25 basis points (bps) to 5.00%, as predicted by 18 out of 30 economists in a Reuters poll.

In the current easing cycle, the central bank this year has rolled back 100 bps of the 175 bps of rate hikes it made in 2018 to contain capital outflows related to monetary tightening by the Federal Reserve.

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Officials this year have said their main focus is maintaining growth momentum amid a global slowdown in growth.

BI's two other main rates for overnight deposit and lending facilities were also trimmed by 25 bps on Thursday, to 4.25% and 5.75%, respectively.

Governor Perry Warjiyo raised a possibility of more cuts, while reiterating that all BI policies have been directed at boosting growth as "pre-emptive" measures amid global economic slowdown.

"Room for accommodative policy mix is still there," Warjiyo told reporters after a policy meeting.

"How we utilize it is data dependent, month by month we will review domestic and global economic development. What the data dependent is about, it is about the using the right instrument, deciding the size and the timing," he said, adding that tools that can be used include the benchmark rate or banks' reserve requirement ratios.

Capital Economics said the slowing economy and subdued inflation mean BI "would certainly like to cut rates again in the coming months", but the timing will be determined by the rupiah's performance.

The currency has been stable this year, but it is "likely to lose ground against the greenback over the coming months if, as we suspect, slowing global growth and an escalation of the trade war lead to a rise in global risk aversion," the consultancy said.

After the rate decision, the rupiah weakened very slightly to 14,046 to the dollar from 14,035.


BI revised down a touch its outlook for the third quarter growth to 5.05% from 5.1%, but maintained its forecast for full-year 2019 at around 5.1%, Warjiyo said, while noting that the government should provide fiscal stimulus to help boost GDP expansion to 5.3% in 2020.

In July-September, there have been signs of further slump in the economy, with car and motorcycle sales falling, a private Purchasing Managers' Index (PMI) showing continuing contraction and the weakest loan growth in 20 months in September.

The BI meeting ended the day after President Joko Widodo, who began a second five-year term on Sunday, named a cabinet that retained Sri Mulyani Indrawati as finance minister, which the market welcomed.

Widodo will be under pressure to raise the economic growth rate, which has been stuck close to around 5% for years, and to attract more foreign investment, which has slumped.

Investors may begin to realise their business plans in the final quarter of 2019, following Widodo's announcement of the cabinet, Warjiyo said

Inflation was not a concern, the governor said, predicting it would stay within target this and next year, while the current account deficit would be manageable and 2019 balance of payments "certain" to post a surplus.