Indonesia’s central bank unveils sixth rate cut during pandemic
Bank Indonesia has eased lending rules in a bid to boost the coronavirus-hit economy as it downgraded its growth forecast for this year
Indonesia’s central bank (CB) cut interest rates for a sixth time during the pandemic and eased lending rules on Thursday in a bid to boost the coronavirus-hit economy as it downgraded its growth forecast for 2021.
Bank Indonesia (BI) cut the benchmark 7-day reverse repurchase rate by 25 basis points (bps) to 3.50%, the lowest since it began using the instrument as its benchmark in 2016. The move was forecast by a majority of 30 analysts in a Reuters poll.
“This decision is consistent with expectations of inflation staying low, the rupiah remaining stable, and as a further step to push the momentum of the nation economic recovery,” Governor Perry Warjiyo told a virtual briefing.
The central bank cut its 2021 economic growth outlook to 4.3% to 5.3%, down from the 4.8% to 5.8% range previously, Warjiyo said, noting a weaker than expected fourth-quarter performance.
He also said BI would remove a downpayment requirement for vehicle loans and some mortgages from March until the end of the year.
The lending growth rate target for this year was also cut to a 5% to 7% range from a 7% to 9% range previously and Warjiyo warned he would name banks that did not lower lending rates.
The main stock index erased earlier gains to trade down 0.4% ater the announcement, while the rupiah, which BI said was undervalued, remained unchanged.
Indonesia’s economy fell into recession for the first time in over two decades in 2020 as the government struggled to contain the coronavirus. Indonesia has the highest caseload and death tally from COVID-19 in Southeast Asia.
To help soten the blow, BI last year delivered five rate cuts, totalling 125 basis points, pumped some $50 billion worth of liquidity into the financial system, and relaxed lending rules. The central bank last cut interest rates in November.
Despite this, the economy shrank 2.07% in 2020, the first full-year contraction since the Asian financial crisis in 1998.
The Indonesian rupiah was litle changed while stocks declined ater the country’s central bank cut interest rates by 25 basis points, as expected, and downgraded the economic growth outlook for 2021. Rupiah was flat in the run up to the decision ater weakening 0.7% over the past two sessions, while stocks fell 0.4%, retreating from a 0.9% jump in the morning trade.
BI also trimmed the lending facility rate and relaxed some borrowing rules as it now forecasts slower economic growth in 2021 due to the harsh second wave of COVID-19 infections, but banked on vaccines to drive a rebound.
“While a relatively stable currency in general helped BI to opt for a cut, it needs to be remembered that weak economic activity is the prime reason for Indonesia’s healthy current account balance,” said Kunal Kundu, an economist at Societe Generale. “Going forward, we do not see any further scope of rate cut by BI unless the COVID-19 situation worsens even further.”
The central bank signalled it would use other means to provide monetary help, including continuing to buy government bonds, which BNP Paribas’ head of ASEAN Economics Arup Raha saw as vital if done in tandem with fiscal support.
Indonesia financed its 2020 fiscal deficit and COVID-19 stimulus by raising debt, a good portion of which was bought by the central bank. Other currencies in the region eased as the dollar firmed on signs of a pickup in the US economy.
Targeting the high-density hustle and bustle of traditional markets, Indonesia on Wednesday launched the second phase of its COVID-19 vaccination programme, which also covers essential workers and public servants.
The roll out in the Southeast Asian nation worst hit by the pandemic began last month, with nearly 1.5 million medical workers set to receive their shots of Coronavac, produced by China’s Sinovac Biotech by the end of this month.
The new phase, which started at the sprawling, multi-level Tanah Abang market in Jakarta, saw hundreds of market vendors inoculated on Wednesday, some posing thumbs up next to an “I’ve been vaccinated” banner ater receiving their shot.
“At first I was scared because people said things that frightened me about geting vaccinated,” said Rusyandi, a 34-year-old worker. “Nothing happened and I feel like I’m free.”
Health Minister Budi Gunadi Sadikin said nearly 10,000 workers at the market complex would be vaccinated on Wednesday.
Touring the market during the launch, President Joko Widodo said he hoped public workers such as security forces, as well as journalists, athletes and those in the retail sector could soon be inoculated.
With more than 1.2 million confirmed cases and over 33,000 deaths across the country, in the past year traditional markets have emerged as COVID-19 cluster points in Indonesia.