Bank Indonesia steps up action as political pressure mounts
JAKARTA: Indonesia's central bank reduced its main interest rates and reserve ratio for lenders, taking more determined action to boost the economy in the face of political pressure. Governor Agus Martowardojo and his board lowered the benchmark reference rate by 25 basis points to 7 percent, Bank Indonesia said Thursday. That's in line with the forecasts of 17 of the 28 economists, while the rest predicted no change. The monetary authority also lowered the reserve-requirement ratio for lenders by 100 basis points to 6.5 percent.
Falling crude prices are helping to curb inflation in Indonesia, giving policy makers room to focus on supporting an economy that expanded last year at the slowest pace since the end of the financial crisis in 2009. President Joko Widodo said in an interview last week that he wants to see interest rates fall further to spur growth, a view echoed on Thursday by the economic affairs minister.
"Marginally, it's more aggressive than expected," Wellian Wiranto, an economist in Singapore at Oversea-Chinese Banking Corp., said by phone, adding a smaller reduction in the reserve ratio had been a possibility. "This might not be the last cut." Bank Indonesia also lowered the rate it pays lenders on overnight deposits, known as the Fasbi, to 5 percent from 5.25 percent, while the lending facility rate was reduced by the same magnitude to 7.5 percent. Stocks rose and the currency fell after the announcement. The Jakarta Composite Index rose 0.3 percent after nearly erasing an earlier increase on Thursday, while the rupiah pared gains after the decision to close 0.1 percent stronger at 13,503 a dollar, according to prices from local banks. Two-year government bonds extended losses, pushing the yield up six basis points to 7.65 percent. "The decision to lower the reserve-requirement ratio was a surprise," Miles Remington, head of equities at BNP Paribas Securities Indonesia, said by email. "The move should further boost confidence among investors on Indonesia."