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Indonesia suddenly cuts key rate to 4.25%

Staff Writer |
The central bank of Indonesia unexpectedly cut its key repo rate by 25bps to 4.25 percent on September 22nd 2017, following a similar 25bps cut in the previous meeting.

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The move aimed to strengthen banking intermediary function and support economic growth.

Policymakers said current policy stance is sufficient to achieve inflation and macroeconomic targets, suggesting further loosening is unlikely in the near future.

The lending and the deposit facility rates were also lowered by 25bps each to 5 percent and 3.5 percent respectively.

Excerpts from the Bank Indonesia Press Release:

"The BI Board of Governors agreed on 20th and 22nd September 2017 to lower the BI 7-day Reverse Repo Rate 25 basis points (bps) from 4.50% to 4.25%, while also lowering the Deposit and Lending Facility rates 25 bps to 3.50% and 5.00% respectively, effective 25th September 2017.

"The decision was consistent with low inflation, estimated to continue till the end of 2017, and 2018 and 2019 inflation projected to stay below the mid range of the target, as well as current account deficit under control within a heatlhy range.

"External risks, specifically related to FFR hike and US balance sheet normalization plans, have also been accounted for. The rate cut is expected to support the ongoing improvements in banking intermediation and domestic economic recovery.

"Bank Indonesia views that the current level of policy rate is sufficient in accordance with the forecast of inflation and other macroeconomics.

"Furthermore, Bank Indonesia will continue to coordinate with the Government to reinforce policy mix in order to maintain macroeconomic stability and strengthen economic recovery momentum.

"Moving forward, economic growth is expected to improve along with more expansive government spending and Bank Indonesia’s monetary policy easing.

"Consequently, Bank Indonesia maintains its prediction for 2017 national economic growth in the 5.0-5.4% range, accelerating in 2018 to 5.1-5.5%.

Moving forward, low inflation is expected to persist within the target range, supported by anchored expectations, relatively stable exchange rates and the downward global inflation trend.

"Nevertheless, Bank Indonesia will continue to strengthen policy coordination with the central government and regional administrations to control inflation, to support achievements of the inflation targets at 4.0±1% in 2017 and at 3.5±1% in 2008 and 2019.

Moving forward, bank intermediation is expected to improve in line with BI’s decision to perform rate cut and macroprudential policy easing, while banking and corporation consolidation continues.

"In addition, economic financing through capital markets is also expected to improve, in line with financial markets deepening efforts."

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