Indonesia poised to cut interest rate

The Bank Indonesia is set to ease monetary policy to counter the global economic slowdown sparked by the US-China trade war, according to Indonesia’s finance minister, Sri Mulyani Indrawati.

“When the situation has now changed, especially in advanced countries, including about the direction of monetary policies, and there is a signal of the global economy weakening, I think Bank Indonesia will also adjust its monetary policy stance,” Indrawati told the media in Jakarta. “How will BI do it? We will respect whatever they will do.” 

The Bahana Sekuritas chief economist Putera Satria Sambijantoro said it was the perfect time for BI to cut interest rates. 

Favourable factors for the move included Indonesia’s credit rating upgrade from Standard & Poor’s, signs that the US Federal Reserve would cut its interest rates, the weakening dollar, low US Treasury yields, falling oil prices and the interest rates cut by central banks elsewhere in the region.

But Satria added that an interest rate cut by BI would depend on momentum, allowing the rupiah’s exchange rate to remain stable.

Other central banks are adopting looser monetary policy. India, Australia, New Zealand, the Philippines and Malaysia have all cut rates in recent weeks. 

Bank Indonesia has kept interest rates on hold this year after rising by 175 basis points last year.

BI governor Perry Warjiyo said this week that the monetary authority would adjust its policy to support financial stability and boost economic growth. 

Last year’s increases helped to shore up the rupiah and attract foreign investment back to stocks and bonds.

Economic growth was expected to be below the BI’s forecast range of 5-5.4 per cent this year, the governor said. 

The governor said in May that growth was currently expected to reach 5.1 per cent this year, disappointing by Indonesian standards but eye-watering for any western economy.

Warjiyo predicted economic growth for Asean’s largest economy of 5.1-5.5 per cent next year. He said the bank would continue to monitor global economic conditions to assess whether there was scope for an “accommodative monetary policy”.

Warjiyo said Indonesia would need to rely on domestic consumption and investment to boost growth with the rate decision due to be announced on June 20. 


Indonesia is hoping to recover from the instability caused by the recent election. Picture credit: Wikimedia