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.
STAYING AHEAD: Fitch said that TSMC remains technologically ahead of others, but Samsung is building a new chip fab, while China is investing in its domestic industry As escalating US-China tensions and COVID-19-related production disruptions force US technology supply chains to transform, Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) US$12 billion chip fabrication plant in Arizona would be key to spurring greater US production of core semiconductor components, Fitch Ratings said. “We view the US-TSMC alliance as a first step in building a more autonomous US technology supply chain, given high barriers to entry, specifically related to the significant capital and design capability required for leading-edge semiconductor manufacturing,” Fitch said in a statement on Tuesday. “By working with TSMC, US chipmakers will not face the financial burden of incremental investment
DIVERSIFICATION: Although COVID-19 would push more companies to produce in emerging markets, DBS said that it was unlikely that firms would totally leave China Geopolitical tensions and supply disruptions are expected to accelerate the migration of manufacturing out of China, as concerns about the risk of production concentrated in one country increase, S&P Global Ratings said. Although its economic expansion might be weaker than previous levels due to the accelerated relocation of manufacturing, China’s economic growth would still be stronger than that of most other economies, the ratings agency said. “While absolute growth rates will moderate, we believe China’s economic performance will continue to be a key sovereign credit support,” S&P Global Ratings credit analyst Tan Kim Eng (陳錦榮) said in a statement on Thursday. “Its growth
Taiwan’s corporate landscape has changed significantly over the past 20 years, with Hon Hai Precision Industry Co (鴻海精密) replacing Formosa Plastics Corp (台塑) as the revenue leader, while Taiwan Semiconductor Manufacturing Co. (TSMC, 台積電) has emerged as the most profitable firm, a survey of Taiwan’s 50 largest companies published on Tuesday last week showed. The Chinese-language CommonWealth Magazine survey ranked Taiwan’s 50 largest companies based on their revenue last year, and compared them with the results of a similar survey it conducted in 2000. Only 33 companies on the original list remained in this year’s rankings, the survey found, following two
GEOPOLITICAL RISKS: Beijing announced plans to strengthen ‘enforcement’ in Hong Kong, sparking losses across Asia led by the Hang Seng’s 5.6 percent plunge Local shares on Friday ended sharply lower amid renewed tensions between the US and China over Chinese telecommunications equipment giant Huawei Technologies Co Ltd (華為) and China’s plan to introduce a national security law in Hong Kong. The TAIEX on Friday finished down 197.16, or 1.79 percent, at 10,811.15 on turnover of NT$177.183 billion (US$5.9 billion), almost flat from a close of 10,814.92 on May 15. The market was down across all major sectors, in particular electronics shares, which finished down 1.99 percent from Thursday’s close. Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), the world’s largest wafer foundry and a chip supplier