Photographer: Dimas Ardian/Bloomberg

Indonesia Cuts Rate For Third Month, Signals Cautious Path

  • Bank under pressure to support government growth drive
  • Rupiah rebound this year creates room for monetary easing

Indonesia’s central bank cut its main interest rate for the third straight month to boost growth, and signaled it will be more careful in any further policy easing.

Bank of Indonesia Governor Agus Martowardojo.
Bank of Indonesia Governor Agus Martowardojo.
Photographer: Dimas Ardian/Bloomberg

Governor Agus Martowardojo and his board lowered the reference rate by 25 basis points to 6.75 percent, Bank Indonesia said on Thursday. That was in line with the forecasts of 15 of the 24 economists surveyed by Bloomberg, while the rest predicted no change. The monetary authority also cut its lending facility and deposit facility rates by 25 basis points each.

With exports falling and commodity prices under pressure, the government has been urging Bank Indonesia to join its regional and global counterparts and add monetary stimulus to Southeast Asia’s largest economy. The central bank resisted for much of 2015, finally pulling the trigger this year after inflation eased into its target range and the rupiah staged a rebound against the dollar.

“If this is not the end of the easing cycle, then it is very close to the end,” said Trinh Nguyen, an economist at Natixis Asia Ltd in Hong Kong. “If there are any more moves, the last one will be in April.”

The rupiah strengthened 1.3 percent to 13,095 per dollar ahead of the decision, taking its gains for the year to more than 5 percent, while the Jakarta stock market closed up 0.5 percent.

Slowing Cycle

The decision came just hours after the U.S. Federal Reserve chose to hold its benchmark rate and lower the path of future rises, triggering an emerging market currency and stock rally.

In a statement after the decision, Bank Indonesia said the cut was aimed at speeding up economic growth and in line with the inflation outlook. It said policy makers “would be more careful in deciding on any further easing” and that the short term focus would be on ensuring the recent cuts were transmitted effectively.

President Joko Widodo is seeking to revive an economy that grew at the slowest pace last year since the end of the global financial crisis in 2009. In an interview on Feb. 11, he said he wanted interest rates to “fall, fall, fall, fall and keep falling” so that the country could better compete with its neighbors.

“The room was there because inflation has been really soft and the rupiah has been behaving quite well,” Gundy Cahyadi, an economist at DBS Group Holdings Ltd. in Singapore, said before the rate decision. “It’s all about getting economic growth, loan growth and supporting the economy.”

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