ECB rate cut is good for Indonesia: BI
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Bank Indonesia said that the European Central Bank’s (ECB) recent decision to cut its benchmark interest rates will have a positive impact on Indonesia and other emerging markets in general.
“The ECB’s policy will strengthen the monetary measures required to resolve the crisis in Europe. The impact of the policy will be positive on emerging markets because global investors will see that investing in emerging countries’ financial markets, including Indonesia, could provide more attractive returns,” Bank Indonesia monetary policy and economic research directorate head Perry Warjiyo said here on Friday.
The ECB cut its benchmark interest rates to 0.75 percent from 1 percent on Thursday. This new interest rate level is a historic low and is expected to boost lending growth in order stimulate economic growth so that the current crisis in the eurozone could be mitigated.
Bank Indonesia’s benchmark interest rates currently stand at 5.75 percent.
Mandiri Securities economist Aldian Taloputra said that the gap of five percent between Bank Indonesia’s interest rates level with that of the ECB would definitely attract global investors to invest in the country’s financial market.
“Our yield looks more attractive by now. In general, the ECB’s interest rate cut gives a positive impact on all of Indonesia’s financial market products,” Aldian told The Jakarta Post.
Bank Indonesia spokesman Difi Johansyah said that the ECB’s interest rates would also positively impact Indonesia’s economic fundamentals.
“This [cut] is a monetary relaxation conducted by the ECP to trigger European economic using low interest rates. Due to these low rates, optimism grows when businesses want to expand. Eventually, the global economy will also improve and this will push Indonesian exports upwards,” Difi told the Post.
Indonesia recorded a negative trade balance for a second straight month in May, as exports remained under pressure from weak global demand while imports soared on capital goods purchases for investment.
Although Indonesia’s export exposure to the eurozone region remains relatively low, the crisis in Europe has affected the economy of China and India. As the crisis goes deeper in Europe, economic activities in China and India have also plunged. Both China and India are Indonesia’s major trade partners and a slowdown in those countries eventually affect Indonesia’s overall exports.
Perry said, however, that the crisis in Europe was still far from over and the world still needed to remain alert.
“What the world is waiting to see now is the commitment for a fiscal union among eurozone countries. As of now, the discussion to fully integrate fiscal policies among eurozone countries is underway,” Perry said.
Previously, Bank Indonesia Governor Darmin Nasution reminded that the complexity of the eurozone crisis was majorly affected by the separation of fiscal policies among its members.
Darwin said that although eurozone members used the same currency, each of its state members implemented different fiscal policies, giving their policy makers headaches to determine the right course of actions to mitigate the crisis.
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