Fri, Jul 19, 2019 - Page 10 News List

Indonesia trims benchmark rate, pledges more easing


A woman leaves the Bank Indonesia headquarters in Jakarta, Indonesia, on Jan. 17.

Photo: Reuters

The Indonesian central bank yesterday cut its benchmark interest rate for the first time in almost two years and pledged more easing to come as it shifts focus to supporting economic growth.

The seven-day reverse repurchase rate was lowered by 25 basis points to 5.75 percent, in line with the forecasts of most economists surveyed by Bloomberg.

The decision came hours after a similar move by the Bank of Korea and after dovish signals from the US Federal Reserve that it would cut interest rates for the first time in a decade this month.

It underscores concern among central bankers about a worsening global economy and trade tensions.

“Bank Indonesia sees that the room is still open for accomodative monetary policy that is in line with the low inflation estimate and the need to push economic growth momentum further,” Governor Perry Warjiyo said in Jakarta.

After raising interest rates by 175 basis points last year to stem an emerging-market rout, Bank Indonesia has proceeded cautiously this year to avoid destabilizing the currency.

With the rupiah gaining this year and concerns about the current-

account deficit moderating, Warjiyo is turning his attention to spurring growth.

Weaker global demand and a fallout from the US-China trade dispute are increasingly weighing on Indonesia’s prospects.

The government has trimmed growth forecasts for this year, while the central bank expects the expansion would probably be below the midpoint of its 5 percent to 5.4 percent forecast range.

Bank Indonesia’s first cut since September 2017 might just be the beginning of an easing cycle that could push the benchmark rate down to 5 percent by the end of the year, according to Morgan Stanley.

Still, there is reason for the central bank to tread more cautiously given Indonesia’s reliance on foreign inflows to fund the current account deficit.

Mohamed Faiz Nagutha, an economist at Bank of America Merrill Lynch in Singapore, said this is probably a “mini easing cycle” with more rate cuts to come given low inflation.

“We see more for sure,” he said, forecasting 75 basis points of easing this year, including yesterday’s move. “It was always a matter of time, not if.”

Price pressures remain subdued, giving policymakers room to move. While core inflation accelerated to its highest level in more than two years last month, the headline measure is well within the central bank’s target band of 2.5 percent to 4.5 percent.

Warjiyo said inflation would be low for the rest of the year, forecasting it below the midpoint of the 2.5 to 4.5 percent target.

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