Indonesia cuts rates to boost growth
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.
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.