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More rate cuts needed to jack up growth, economist says

Bank Indonesia has slashed its policy rate to bring down the seven-day reverse repo rate to 5.75 percent, and hinted at the possibility of more cuts going forward.

Marchio Irfan Gorbiano (The Jakarta Post)
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Jakarta
Wed, July 24, 2019

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More rate cuts needed to jack up growth, economist says Bank Indonesia has slashed its policy rateĀ to bring down the seven-day reverse repo rate to 5.75 percent, and hintedĀ at the possibility of more cuts going forward. (Shutterstock.com/Harismoyo )

A

nalysts and businesspeople have said that Bank Indonesia (BI) will need to further slash its reference interest rate in order to stimulate the economy.

The central bank slashed its policy rate by 25 basis points (bps) on July 18 to bring down the seven-day reverse repo rate to 5.75 percent, while also hinting at the possibility of more cuts going forward amid low inflation and the need to boost GDP expansion.

Bahana Sekuritas economist Satria Sambijantoro said that while the current 25 bps cut would stimulate the economy, further easing would be welcomed to jack up GDP growth in the future.

“The impact of 25 or 50 bps rate cuts would be minimal to the economy,” said Satria. “If we want to really stimulate the economy, one must be bold to deliver a gradual cycle of monetary easing.”

He previously projected a BI interest rate cut by 100 bps within the year, in a move to partially unwind last year’s 175 bps tightening cycle that was aimed to stabilize the rupiah amid heightened external pressures.

Indonesian Chamber of Commerce and Industry (Kadin) deputy chairwoman for international relations Shinta W. Kamdani said further cuts to make the interest rate competitive compared to its ASEAN peers would be welcomed by the private sector, although she emphasized that such easing should be conducted prudently.

“For businesses, further interest rate cuts to a level competitive with ASEAN [countries] would be an outcome that is welcomed,” she said. “However, if such a thing occurs, it must be conducted prudently so as to avoid disturbing our macroeconomic stability.”

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