Bank Indonesia cuts rate, trims outlook

Covid-19 impact on economy will be short term, says central bank governor

JAKARTA: Indonesia’s central bank cut its key policy interest rate yesterday and trimmed this year’s economic growth outlook, as it stepped up efforts to ward off the impact of the coronavirus outbreak.

Bank Indonesia (BI) cut the seven-day reverse repurchase rate by 25 basis points (bps) to 4.75%, the first easing in 2020 and following four cuts of 100 basis points in 2019.

The move was expected by 16 of 28 analysts in a Reuters poll, while the rest had predicted no change.

Southeast Asia’s largest economy last year grew at the slowest pace since 2016, at 5.02%, held back by falling exports and soft investment amid a global economic slowdown.

Growth this year may be slower than initially expected, within a range of 5.0%-5.4%, compared to BI’s previous range of 5.1%-5.5%, said governor Perry Warjiyo (pix), with the Covid-19 outbreak seen hurting tourism, trade and investment.

“Uncertainty is high when we measure the impact of Covid-19 ... therefore we say that the impact is Vshaped. (GDP growth) will fall, but then there will be recovery,” Warjiyo said, adding that BI used the 2003 SARS outbreak in Hong Kong as a reference.

First-quarter GDP growth might dip to around 4.9%, but economic expansion would likely rebound to above 5% in the second half, he said.

This was based on an assumption that a drop in the number of foreign tourists would last for six months and tourism earnings dip by US$1.3 billion (RM5.4 billion), while imports decline by US$700 million (RM2.9 billion).

Warjiyo said Bank

Indonesia’s policy stance would remain accommodative and liquidity kept ample.

The rupiah currency barely moved after the rate cut, but it had weakened

0.6% yesterday ahead of the policy announcement to trade at 13,760 per dollar.

“We can sense that monetary policymakers are concerned regarding the effects of Covid-19 to both Indonesian economic growth and external stability,” said Wisnu Wardana, Bank Danamon’s economist in Jakarta.

However, Wardana said room for further easing may be limited “without a convergence of global easing”.

Brokerage Trimegah Sekuritas expects one more rate cut in the second quarter, its economist Fakhrul Fulvian said. – Reuters