Bank Indonesia cuts policy rate as worst has passed
Bank Indonesia, the country's central bank, has cut its benchmark interest rate in a surprise move to accelerate economic recovery amid growing confidence that the worst hit from the Covid-19 pandemic has passed.
The central bank lowered its seven-day reverse repo rate by 25 basis points to 3.75pc, the lowest since Bank Indonesia introduced the new benchmark in 2016. The market had expected the central bank to keep the rate for the fourth time since the last cut in June.
"The decision is based on projected low inflation, maintained external stability as well as follow-up policy measures to expedite the national economic recovery," Bank Indonesia Governor Perry Warjiyo said in a statement.
Inflation has hovered well below Bank Indonesia's 3 percent target so far this year. Last month, the annual inflation rate was at 1.44 percent, picking up slightly from 1.42 percent in September.
The country's growth domestic product contracted 3.49 percent in the third quarter this year from the same quarter last year, an improvement from 5.32 percent contraction in the second quarter, thanks to increasing government stimulus spending, public mobility, and global demand.
Perry Warjiyo said the indicators pointed toward recovery in the economy. "We estimate, God willing, GDP growth will start to be positive in the fourth quarter and continue to increase in 2021," he said.
A day earlier, Finance Minister Sri Mulyani Indrawati said that Indonesia might have seen the worst hit from the Covid-19 pandemic but remain cautious about its path to recovery.
"The worst is over, but it doesn't mean, and it doesn't guarantee it will continue to be good if we don't keep up.