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Agus delivers his first interest rate cut
In a surprise move, Bank Indonesia (BI) governor Agus Martowardojo delivered his first interest rate cut after taking charge of the central bank almost two years ago, as lower-than-expected inflation made room for a loosening of monetary policy to spur economic growth
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n a surprise move, Bank Indonesia (BI) governor Agus Martowardojo delivered his first interest rate cut after taking charge of the central bank almost two years ago, as lower-than-expected inflation made room for a loosening of monetary policy to spur economic growth.
Agus and other members of the central bank's board of governors decided on Tuesday to cut the benchmark BI rate, an influential monetary tool that acts as a yardstick for lending and deposits in the economy, by 25 basis points to 7.5 percent.
No political pressure was involved in the decision, Agus said when responding to The Jakarta Post's question on possible interference from top government officials who were already calling for lower rates, a list that included President Joko 'Jokowi' Widodo and Vice President Jusuf Kalla.
'We today lower both the Bank Indonesia rate and the deposit facility rate because we are certain that price levels would remain manageable, low and stable, as inflation could fall below 4 percent this year,' Agus explained.
BI senior deputy governor Mirza Adityaswara also stated that the decision to lower interest rates was 'data-dependent'.
If realized, the inflation rate would be lower than the government's forecast of 5 percent in the revised 2015 state budget. US-based investment bank JPMorgan Chase has estimated that this year's inflation in Indonesia might stand at only 3 percent.
The opportunity to loosen monetary policy came after the lower inflation was accompanied by a slowdown in the economy, as last year Indonesia only posted annual economic growth of 5 percent, the slowest level in five years.
Even after the rate cut, the current BI rate 'will still make Indonesia one of the few high-yielders in Asia', with minimal risk of capital outflows for the country, said Leong Wai Ho and Angela Hsieh, analysts from Barclays Bank.
The interest rate cut is expected to revive economic growth, which slowed to 5.02 percent last year from a 5.58 percent pace the previous year. President Jokowi has set a target of 5.7 percent for 2015.
