Indonesia cuts rates in effort to boost growth
Indonesia’s central bank made a surprise 25 basis point rate cut to interest rates yesterday as Southeast Asia’s largest economy seeks to boost growth. Bank Indonesia’s board of governors unexpectedly slashed the rate from 4.75 percent to 4.5 percent, defying the predictions of most analysts polled before the announcement. “Cutting the policy’s interest rate is expected to strengthen the banking intermediation and therefore strengthen the stability of the financial system and support the higher economic growth,” Bank Indonesia governor Agus Martowardojo said at a press conference. President Joko Widodo came to power in 2014 on a pledge to boost economic expansion to seven percent but his government has struggled to lift growth rates amid a slump in commodity prices.
The economy grew a slower-than-expected 5.01 percent in the second quarter, unchanged from the first quarter, but below the government target of 5.2 percent growth for 2017. The central bank said credit growth was expected to increase to between 10-12 percent in 2018.
Analysts have tipped further cuts could be on the horizon, given the improving outlook for inflation in Indonesia. “Given the poor outlook for growth, as well as easing concerns over inflation and the currency, we suspect further rate cuts are only a matter of time,” Gareth Leather, senior economist with Capital Economics, said in a statement. — Agencies