Thursday, September 22, 2016

Indonesia cuts rate 25 bps to boost domestic demand

   Indonesia's central bank cut its new benchmark 7-day reverse repo rate by 25 basis points to 5.00 percent, as expected, to provide a further boost to domestic demand and economic growth at a time of low inflation, a current account deficit that is under control and a "relatively stable" exchange rate.
    Bank Indonesia (BI), which in August adopted the 7-day RR rate as its benchmark rate instead of the BI rate to improve the transmission of its monetary policy, also lowered the rate on its deposit facility by 25 points to 4.25 percent and the lending rate by 25 points to 5.75 percent.
     The BI has now cut its key policy rates five times this year by a total of 125 basis points. Earlier this month the BI's governor, Agus Martowardojo, said the central bank was ready to ease its policy subject to the latest economic data.
     Indonesia's inflation rate fell to 2.79 percent in August, the lowest rate since December 2009, from 3.21 percent in July, and the central bank said it now expects inflation to approach the lower limit of its target range this year.
   In August the BI forecast that inflation would end this year within the target corridor of 4.0 percent, plus/minus 1 percentage point.
    Indonesia's economy in the third quarter is not as strong as the central bank previously expected as non-construction investment is not showing "significant improvements' and fiscal stimulus is expected to remain limited, in line with the government's change for the second half of this year.
   The BI in August lowered its growth forecast for this year to 4.9 - 5.3 percent from a previous 5.0 - 5.4 percent as the government cut its budget by 133 trillion rupiah.



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