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Indonesia cuts interest rates third time this year

Staff writer |
Indonesia's central bank cut its interest rates for a third time this year in a bid to boost growth and said there was more room for reducing them amid easing inflationary pressures and less global uncertainty.

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The Board of Governors of Bank Indonesia, led by Governor Agus Martowardojo, slashed its key interest rate by a quarter-point to 6.75 percent.

The latest decision was in line with economists' expectations. The latest round of policy easing began in January, when policymakers had cut the rate by the same size, marking the first reduction in 11 months. The move was repeated in February.

The bank also cut the lending facility rate and deposit facility rate, known as FASBI, by the same amount to 7.25 percent and 4.75 percent, respectively.

"The move is consistent with greater room to ease monetary policy along with a solid macroeconomic stability, specifically indicated by the persistently less intense inflationary pressures in 2016 and 2017, while uncertainties in the global financial market decreased," the bank said.

"Amid a sluggish global economic growth, the lower BI Rate is expected to enhance domestic demand to bolster economic growth momentum, while maintaining macroeconomic stability."

However, the bank said policymakers will be "cautious in determining future monetary easing". In the short term, the bank will focus on strengthening operational framework through a consistent term structure of monetary operations to enhance the effects of policy transmission, the bank added.

Growth is expected to continue improving in the first quarter on the back of fiscal stimuli and exceed the pace seen in the previous three months, helped by state spending and investment. The bank retained the growth forecast for this year at 5.2-5.6 percent.

The downward oil price trend is expected to further damp inflationary pressures and inflation is projected to stay within the 4±1 percent target corridor this year.

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