Views Article – Sharenet Wealth

Asia, Forex

Indonesia c.bank surprises with 2nd rate cut in two months

* Key rate cut by 25 bps to 5.50%, 2nd trim in 2 months

* Low inflation helps make cut possible- governor

* Indonesia hiked six times in 2018, by 175 bps

By Maikel Jefriando and Tabita Diela

JAKARTA, Aug 22 (Reuters) – Indonesia’s central bank unexpectedly cut its key interest rate for a second time in two months on Thursday, saying it was acting pre-emptively in anticipation of a global economic slowdown.

Bank Indonesia (BI) cut the 7-day reverse repurchase rate by 25 basis points to 5.5.%. Only two of 19 economists in a Reuters poll predicted the cut, the other 17 forecast a hold in the wake of recent global financial volatility.

Last month, BI cut its key rate by 25 basis points (bps), the first loosening since September 2017, which many predicted was the start of an easing cycle that would unwind BI’s 175 basis points of tightening in 2018.

That tightening cycle was to support the embattled rupiah by containing capital outflows linked to U.S. interest rate hikes and the U.S.-China trade war.

Thursday’s rate cut would aid economic growth and fits the outlook for inflation to remain low, BI Governor Perry Warjiyo told reporters.

The governor said the cut was “a pre-emptive measure to push forward economic growth momentum from the impact of the global economic slowdown.”

He said the central bank would continue with an “accommodative policy mix”.

The rupiah strengthened marginally to 14,225 against the dollar on the BI announcement.

Capital Economics said te uncertain outlook for the currency “means that any further loosening is likely to be very gradual”. (Additional reporting by Fransiska Nangoy; Writing by Gayatri Suroyo; Editing by Richard Borsuk)

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