Indonesia cuts rates to boost growth

The Myanmar Times - - International Business -

INDONESIA’S cen­tral bank has cut its bench­mark in­ter­est rate in a bid to boost sag­ging growth, given space to act by the US Fed­eral Re­serve’s de­ci­sion last week not to raise the cost of bor­row­ing.

Bank Indonesia slashed the rate by 25 ba­sis points to 5 per­cent, as ex­pected. The bank shifted to us­ing the cur­rent, more short-term fo­cused bench­mark last month in a bid to more quickly trans­mit changes in bor­row­ing costs to the real econ­omy.

It was the fifth cut to the bench­mark rate this year and the first re­duc­tion since June, as pol­i­cy­mak­ers scram­ble to boost South­east Asia’s top econ­omy, which has been losing steam in re­cent years due to slow­ing de­mand for its com­mod­ity ex­ports.

“The pol­icy of mone­tary eas­ing is to strengthen the push for do­mes­tic de­mand, in or­der to pro­mote mo­men­tum of eco­nomic growth,” said bank gover­nor Agus Mar­to­war­dojo.

Indonesia has a rapidly grow­ing mid­dle class, and do­mes­tic consumption has been a key pil­lar of growth.

Pol­i­cy­mak­ers were given room to lower rates af­ter the US Fed­eral Re­serve de­cided against lift­ing in­ter­est rates last week, giv­ing a boost to Asian mar­kets and currencies, in­clud­ing the Indonesian ru­piah.

A US rate hike could hit Indonesia hard, as it is likely to spark a flood of money out of emerg­ing mar­kets.

Slow­ing in­fla­tion also helped – con­sumer prices rose 2.8pc year-onyear last month, the slow­est pace since late 2009. 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 dif­fi­cult busi­ness en­vi­ron­ment.

The econ­omy ex­panded at 5.18pc in the sec­ond quar­ter, faster than ex– pected but still be­low the an­nu­alised growth rates of over 6pc seen sev­eral years ago.

Photo: AFP

A ven­dor takes a nap while wait­ing for cus­tomers in Jakarta. Indonesia’s cen­tral bank cut its bench­mark in­ter­est rate in a bid to boost sag­ging growth.

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