Fri, Jan 15, 2016 - Page 14 News List

Bank Indonesia cuts interest rate

Bloomberg

Indonesia’s central bank cut its main interest rate for the first time in 11 months, prioritizing a boost to flagging economic growth over concerns looser policy could trigger further currency weakness.

Bank Indonesia Governor Agus Martowardojo and his board lowered the rate by 25 basis points to 7.25 percent, the bank announced yesterday.

Thirteen of 23 economists surveyed by Bloomberg forecast the decision, while the remainder predicted an extended pause.

The authority also cut the rate it pays lenders on overnight deposits, known as the Fasbi, by 25 basis points to 5.25 percent.

The rate move came on a day when several people were killed in explosions and gunfire in the biggest attack in the capital since at least 2009, hurting sentiment and adding to financial market turmoil.

The central bank has faced political pressure to ease policy and revive an economy growing at the slowest pace since 2009, while grappling with a rupiah selloff. Contained inflation provides scope for policymakers to cut, though they also have to consider fallout from last week’s sharp drops in China’s currency and stocks.

The decision “is warranted given inflation is turning more favorable, along with more stable external conditions this week,” Singapore-based Nomura Holdings Inc economist Euben Paracuelles said ahead of the announcement.

The rupiah has fallen 0.7 percent this year after a 10 percent depreciation last year. The benchmark Jakarta Composite Index of Shares closed 0.5 lower.

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