Bank Indonesia Signals Rate Cuts After Lowering Reserve Requirement
June 20 2019 - 3:39AM
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Indonesia's central bank left its key interest rate unchanged
for a seventh month in a row in June, but cut the reserve
requirement for banks to ensure adequate liquidity to boost
lending, and signaled that rates are set to be reduced in
future.
The Board of Governors decided to hold the 7-day reverse repo
rate at 6 percent, the Bank Indonesia said Thursday, in line with
economists' expectations. The bank had raised interest rates by a
cumulative 175 basis points between May and November last year. The
deposit facility rate was maintained at 5.25 percent and the
lending rate at 6.75 percent. The bank trimmed the rupiah reserve
requirement for banks by 50 basis points to provide sufficient
liquidity in the banking system to support lending to the real
economy. The reserve requirement reduction will take effect on July
1. The central bank said it "constantly monitors global financial
market dynamics and the external stability of the national economy
when considering reductions to the policy rate in line with low
inflation and the current need to stimulate domestic economic
growth."
Bank Indonesia Governor Perry Warjiyo told reporters that the
central bank will cut interest rates in future and it was just a
matter of "timing and magnitude".
Central banks across the world has embarked on an easing trend
as the global economy slows due to trade tensions and other
geopolitical concerns.
The US Federal Reserve on Wednesday signaled that it was open to
more rate reduction in the near-term.
Australia, New Zealand, India, Malaysia and Russia, among
others, have cut interest rates this year and some have signaled
more easing in future.
Elsewhere on Thursday, central banks in Japan, Taiwan and the
Philippines held interest rates steady, while their Norwegian
counterpart hiked them and signaled more tightening this year.
The Indonesian central bank said the economic growth momentum
softened in the second quarter due to weaker exports. The bank
forecast economic growth below the midpoint of the 5-5.4 percent
range this year. Inflation is expected to be below the midpoint of
the 3.5±1 percent target corridor for the year. "Given the clear
hints at rate cuts in today's statement and the dovish tone struck
by BI officials over the past couple of weeks, we are now
forecasting one 25bp interest rate cut this year, most likely at
BI's next meeting in July," Capital Economics economist Franziska
Palmas said. "The upshot is that, while we now expect rates to be
cut this year, we are not anticipating a prolonged or aggressive
easing cycle," the economist added.
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