Key rate trimmed to spur lend­ing

The Sun (Malaysia) - - SUNBIZ -

JAKARTA: In­done­sia’s cen­tral bank, mov­ing while in­fla­tion is the low­est in years and as the Fed­eral Re­serve stood pat, es­ca­lated ef­forts to spur lend­ing by cut­ting its bench­mark in­ter­est rate for the fifth time this year.

Bank In­done­sia (BI) trimmed the 7day re­verse re­pur­chase rate, a new bench­mark that it fully adopted last month, by 25 ba­sis points to 5.00%.

The cen­tral bank also cut the rate it gives banks for overnight de­posit and the rate it charges banks for bor­row­ing a night by the same amount. They are now at 4.25% and 5.75%, re­spec­tively.

BI “be­lieves that this loos­en­ing will strengthen poli­cies, which the gov­ern­ment is tak­ing, to grow the econ­omy,” gov­er­nor Agus Mar­to­war­dojo said.

An­a­lysts said the stars were aligned for the cen­tral bank to cut, es­pe­cially af­ter the Fed’s de­ci­sion and lesshawk­ish com­ments about the pace of fu­ture hikes in US in­ter­est rates.

“Sub­dued in­fla­tion, along with sta­bil­ity in both the cur­rent ac­count deficits and ex­change rates, has cre­ated pol­icy space for rate cuts,” said Wei­wen Ng of ANZ, adding that there could be more eas­ing ahead.

In a Reuters poll, 17 of 23 an­a­lysts pre­dicted BI would cut the bench­mark yes­ter­day.

In Au­gust, BI changed its bench­mark to the seven-day re­verse re­pur­chase rate in a bid to bet­ter trans­mit mon­e­tary pol­icy to the mar­ket.

Ear­lier this year, BI cut its then­bench­mark, the 12-month ref­er­ence rate, four times to try to get banks to lend more and speed up slug­gish eco­nomic growth.

The ef­fects of the pre­vi­ous cuts have been limited, with the lat­est data show­ing loans by com­mer­cial banks as of July ex­pand­ing at the weak­est pace since Novem­ber 2009 on an an­nual ba­sis.

In the past, a high in­fla­tion rate has been a key fac­tor mak­ing BI raise rates, and then be re­luc­tant to lower them.

But this year, in­fla­tion has been very low. In Au­gust, the an­nual in­fla­tion rate was 2.79%, the low­est since De­cem­ber 2009 and be­low BI’s 3-5% tar­get range.

The ru­piah strength­ened yes­ter­day, af­ter the Fed state­ments, and is up about 5.30% against the dol­lar this year. – Reuters

Newspapers in English

Newspapers from Malaysia

© PressReader. All rights reserved.