Bank Indonesia cuts key rate again

JAKARTA: Indonesia’s central bank stepped up efforts to boost Southeast Asia’s largest economy yesterday by cutting its benchmark interest rate for the fourth time in four months, while saying growth in the third quarter might be slower than expected.

Bank Indonesia (BI) lowered the seven-day reverse repurchase rate by 25 basis points (bps) to 5%, governor Perry Warjiyo said, as predicted by 18 out of 30 economists in a Reuters poll.

Since July, the central bank has rolled back 100 bps of the 175 bps of rate hikes made in 2018 to contain capital outflows related to monetary tightening by the US Federal Reserve.

Warjiyo raised a possibility of more cuts, while reiterating that all BI policies have been directed at boosting growth as “pre-emptive” measures amid global economic slowdown.

“Room for accommodative policy mix is still there,” he told reporters after a policy meeting.

“How we utilise it is data dependent, month by month we will review domestic and global economic development. What the data dependent is about, it is about the using the right instrument, deciding the size and the timing,” Warjiyo said, adding that tools that can be used included the benchmark rate or banks’ reserve requirement ratios.

Capital Economics said the slowing economy and subdued inflation mean BI “will certainly like to cut rates again in the coming months, but the timing will be determined by the rupiah’s performance.’’

“The currency has been stable this year, but it is likely to lose ground against the greenback over the coming months if, as we suspect, slowing global growth and an escalation of the trade war lead to a rise in global risk aversion,” the consultancy said.

After the rate decision, the rupiah weakened very slightly to 14,046 to the dollar from 14,035.

BI revised down a touch its outlook for the third quarter growth to 5.05% from 5.1%, but maintained its forecast for full-year 2019 at around 5.1%, Warjiyo said, while noting that the government should provide fiscal stimulus to help boost GDP expansion to 5.3% in 2020.

The BI meeting ended a day after President Joko Widodo, who began a second five-year term on Sunday, named a cabinet that retained Sri Mulyani Indrawati as finance minister, which the market welcomed.