Indonesia's central bank cut its key interest rate for the first time in nearly two years and signaled more easing in future, joining its peers who have reduced rates ahead of a possible rate cut from the US Federal Reserve. The Board of Governors, led by Governor Perry Warjiyo, decided to reduce the 7-day reverse repo rate by 25 basis points to 5.75 percent, Bank Indonesia said in a statement on Thursday. The decision was in line with economists' expectations. The latest reduction was the first since September 2017. Both the deposit and lending rates were reduced by a quarter-point each to 5 percent and 6.5 percent, respectively. "The policy is consistent with low inflation expectations and the need to build economic growth momentum amidst a backdrop of easing global financial market uncertainty and controlled external stability," the bank said. "Going forward, Bank Indonesia sees open space for accommodative monetary policy in line with the low inflation forecast and the need to push for further economic growth momentum."
Bank Indonesia also noted that the relaxation in policy stance as signaled by central banks in advanced economies have reduced the global financial market uncertainty and driven foreign capital inflows to developing economies. The bank had hiked interest rates by a cumulative 175 basis points in six instances between May and November last year to support the currency Rupiah that had weakened sharply amid rising global uncertainties such as trade conflicts.
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