Indonesia central bank cuts interest rates for third time this year

JAKARTA: Indonesia's central bank today cut interest rates for the third time this year and scaled back its growth projections as the global pandemic batters Southeast Asia's biggest economy.

Policymakers at Bank Indonesia reduced the 7-day reverse repurchase rate by 25 basis points to 4.25%, while lowering their full-year economic growth forecast to between 0.9% and 1.9%, from a previous 2.3%.

The move comes days after the government warned of a 3.1% contraction in the second quarter – the latest in a series of downward revisions.

Central bank governor Perry Warjiyo signalled there was "still room" to cut rates further in the coming months, but added that he expected growth to rebound next year.

"This (rate) decision is consistent with efforts to maintain stability and boost the economy during the Covid-19 era," he said today.

The rupiah strengthened a touch to trade below the 14,000 to the dollar level, while the main stock index pared falls to trade down 0.2% after the announcement.

Warjiyo said the currency was undervalued and could strengthen for the remainder of the year.

In total, BI has trimmed its key rate by 75 bps so far this year to stimulate economic activity, on top of four reductions amounting to 100 bps in 2019.

Wisnu Wardana, an economist at Bank Danamon Indonesia, said while BI had cut the growth outlook, policymakers were noting easing concerns over the pandemic and financial market turmoil. "We still project another 25 bps cut in policy rates this year," he said.

Indonesia has announced a stimulus package worth some US$48 billion (RM205.7 billion) to help offset the impact of coronavirus, which forced a wide-scale shutdown that hammered growth, including in the key tourism sector.

"We expect further gradual easing over the coming months," research house Capital Economics said, citing a "very poor outlook" for the economy. "Virus containment measures are having a huge impact on the economy," it added.

This month, the Southeast Asian archipelago, home to nearly 270 million people, said it was rolling out a "new normal" policy that included gradually easing movement restrictions in a bid to head off economic collapse.

But Indonesia's infections are mounting with cases topping 40,000 on Wednesday, surging beyond neighbouring Singapore to mark the region's highest. The country has also recorded 2,276 deaths. But with one of the world's lowest testing rates, the true scale of the public health crisis is widely believed to be much bigger. – AFP, Reuters

source https://www.thesundaily.my/business/indonesia-central-bank-cuts-interest-rates-for-third-time-this-year-EA2604776