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BI cuts rate for fourth consecutive month, cites need to boost economy
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The logo of Bank Indonesia (BI) is seen at the central bank’s headquarters on Jl. Thamrin in Jakarta. BI cut its benchmark interest rate for the third consecutive month on Thursday to the lowest level in 17 months, citing the need to jack up economic growth amid rising global risks. (JP/Rafaela Chandra)
B
ank Indonesia (BI) has cut the nation’s benchmark interest rate for the fourth month in a row to the lowest level in 17 months, citing the need to stoke economic growth amid rising global risks.
The central bank cut the 7 Day Reverse Repo Rate (7DRRR) by 25 basis points (bps) to 5 percent on Thursday, the lowest level since May 2018, to boost the domestic economy as inflation remains manageable and domestic financial market returns remain attractive, BI Governor Perry Warjiyo said on Thursday.
“The policy is consistent with manageable inflation estimates and attractive domestic financial market yields as well as part of continued preemptive steps to support the domestic economic growth momentum amid global economic slowdown,” Perry announced in a press briefing after the two-day board of governors meeting.
“Loan and deposit rates are expected to go down further as BI eases monetary policy.” The weighted average deposit rate already dropped 13 bps from August to 6.57 percent in September. The lending rate also dropped, especially for investment and working capital loans, to 10.11 percent and 10.33 percent, respectively.
Emerging economies from Mexico to China and neighboring Philippines have embarked on monetary policy easing as international institutions from the World Bank to the International Monetary Fund (IMF) slashed their global economic growth outlooks, pointing to more challenges ahead. Interest rate moves by central banks across a group of 37 developing economies showed a net 11 cuts last month, Reuters reported.
The trade war-driven global economic slowdown has crept into weak corporate investment and consumer demand across the globe from the US and Europe to Japan, China and India, affecting global commodity prices, including oil. Meanwhile, geopolitics-driven uncertainties from the lingering Brexit deal to conflicts in the Middle East have also dragged down market sentiment.
“Global uncertainties are affecting the domestic economy,” Perry said. Indonesia’s economy grew at the lowest level in two years at 5.05 percent in the second quarter of this year, as weak exports and a widening trade deficit as well as stagnating investment weighed on Southeast Asia’s largest economy.
“Going forward, BI will continue to assess domestic and global economic developments to take advantage of an accommodative policy mix.”
Editor's note: This article has been revised to reflect that BI has cut the benchmark policy rate for the fourth consecutive month.
