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Weak June inflation 'good news' for Bank Indonesia rates
The relatively low inflation rate in June may mean that Bank Indonesia (BI) could cut its benchmark rate at the board of governors meeting later this month to help revive the economy amid growing global certainties.
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A trader packs chilies into a plastic bag at market in Surabaya, East Java. The monthly inflation rate increased 0.55 percent in June, partly due to increases in the price of food commodities, including chili. (Antara/Zabur Karuru)
T
he weak inflation in June should be good news for Bank Indonesia (BI), as it had more room to lower its benchmark interest rate – the seven-day reverse repo rate (7DRRR) – after seven consecutive months of maintaining it at 6 percent,Financial analysts say.
Bahana Sekuritas economist Satria Sambijantoro said in Jakarta on Monday that the central bank could cut its rate during the next board of governors meeting in mid-July, “as long as the rupiah’s stability can be maintained in the coming weeks”.
Maybank Indonesia economist Myrdal Gunarto shared Satria’s view, saying that the relatively tame inflation in June gave BI an opportunity to cut its benchmark rate.
Myrdal said he was upbeat that the central bank could lower its rate by 25 basis points (bps) in the third and fourth quarters of the year, as the June inflation rate reflected the country’s strong economic condition.
Moreover, he said, the country also needed fiscal and monetary stimuli to counter the negative effects of its poor export performance due to the escalation of the US-China trade war.
The central bank decided to maintain its policy rate at 6 percent for the seventh consecutive month at its board of governors meeting last month. Before the meeting, analysts expected BI to cut the rate, following in the footsteps of other central banks in the region.
Central banks around the globe have begun to ease their monetary policies to revive their economies amid the slowdown in global trade. The central banks of Australia, New Zealand, the Philippines and Malaysia have all cut their policy rates on the expectation that the United States’ Federal Reserve (the Fed) would cut its benchmark rate faster than initially thought.
