In­done­sia uses new in­ter­est rate to boost econ­omy

The Myanmar Times - - International Business -

IN­DONE­SIA’S cen­tral bank has be­gun us­ing a new bench­mark in­ter­est rate it hopes will trans­mit changes in bor­row­ing costs more quickly, as pol­i­cy­mak­ers seeks fresh ways to boost the econ­omy.

Bank In­done­sia left the new bench­mark, called the seven-day re­verse repo rate, un­changed at 5.25 per­cent on Au­gust 19.

An­a­lysts had been split on whether the bank would make a cut on the new rate’s de­but.

South­east Asia’s top econ­omy has been slow­ing in re­cent years as de­mand for its key com­modi­ties ex­ports have dropped, par­tic­u­larly from re­gional pow­er­house China, and pol­i­cy­mak­ers have been scram­bling to find new ways to lift the coun­try’s for­tunes.

The cen­tral bank had al­ready cuts its old bench­mark four times this year but an­a­lysts say that the moves were fail­ing to per­suade com­mer­cial banks to lower their own lend­ing rates, mean­ing the changes were not hav­ing a ma­jor im­pact on the real econ­omy.

The new rate, which is a shift from the old 12-month ref­er­ence rate, has a more short-term fo­cus and the bank hopes it will help them in­flu­ence mar­kets more quickly and di­rectly.

“Our mon­e­tary poli­cies will be more ef­fec­tive and ef­fi­cient when in­ter­preted by the mar­kets,” said Bank In­done­sia gov­er­nor Agus Mar­to­war­dojo, re­fer­ring to the new rate.

While the bench­mark rate was left on hold, the lend­ing fa­cil­ity rate – the rate at which com­mer­cial banks can bor­row from Bank In­done­sia – was cut by 100 ba­sis points to 6pc.

De­spite the de­ci­sion, Cap­i­tal Eco­nom­ics fore­cast a re­duc­tion in the bench­mark rate soon.

“With growth strug­gling and in­fla­tion­ary pres­sures low, a rate cut is likely sooner rather than later,” it said in a note.

Pres­i­dent Joko Wi­dodo came to power al­most two years ago on a pledge to boost growth in the G20 econ­omy, but has strug­gled to get key projects off the ground due to the dim global out­look and In­done­sia’s no­to­ri­ously dif­fi­cult busi­ness en­vi­ron­ment.

The econ­omy ex­panded faster than ex­pected in April-June, at 5.18pc, but it was still be­low growth rates of over 6pc seen sev­eral years ago. –

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