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Indonesia Slashes Key Interest Rate Again

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Indonesia's central bank unexpectedly slashed its key interest rate for a second straight month in August in a bid to support growth amid a global slowdown.

The Board of Governors, led by Governor Perry Warjiyo, decided to reduce the 7-day reverse repo rate by 25 basis points to 5.50 percent, Bank Indonesia said in a statement on Thursday.

Economists had expected the rate to remain unchanged.

The previous change in the rate was a quarter-point reduction in July, which was the first cut since September 2017.

Both the deposit and lending rates were reduced by a quarter-point each to 4.75 percent and 6.25 percent, respectively.

The current policy is consistent with low inflation forecasts that are below the midpoint of the target and continues to give attractive returns on investment in domestic financial assets to foreign investors, Bank Indonesia said.

The rate cut is also a pre-emptive measure to cushion the impact of the global economic slowdown on the economic growth, the bank added.

The annual economic growth rate slowed to 5.05 percent from 5.07 percent in the previous quarter, due to declining exports.

The central bank projected the economic growth for this year to be below the midpoint of the 5.0-5.4 percent range before increasing towards the middle of the 5.1-5.5 percent range in 2020.

The bank projected inflation this year to be below the midpoint of the 3.5±1 percent target corridor and within the target range for 2020, namely 3.0±1 percent.

"We expect BI to monitor closely the next moves of the Fed as well as the stability of IDR before seriously considering further rate cuts in the near term," ING economist Nicholas Mapa said.

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