Indonesia slashes rates again as tepid global growth bites

People walk to an entrance at Indonesia's central bank Bank Indonesia in Jakarta July 21, 2016. — Reuters pic
People walk to an entrance at Indonesia's central bank Bank Indonesia in Jakarta July 21, 2016. — Reuters pic

JAKARTA, Sept 19 — Indonesia’s central bank slashed interest rates today for the third month in a row as South-east Asia’s biggest economy feels the sting of the US-China trade war and tepid global growth.

Bank Indonesia (BI) lowered its key lending rate by 25 basis points to 5.25 per cent, prompting speculation that more cuts could be in store as central banks around the world adopt softer monetary policies.

“This is a pre-emptive measure to boost the momentum of growth amid a global economic slowdown,” bank governor Perry Warjiyo said.

The move comes after the US Federal Reserve announced its second interest rate cut of the year as it pointed to a slowing world economy and trade tensions with Beijing.

And last week the European Central Bank unveiled a massive stimulus programme rate cut to goose the sluggish eurozone economy.

“The slowing economy and subdued inflation mean BI would certainly like to cut rates again in the coming months,” said Gareth Leather at research house Capital Economics.

“Overall, we are sticking with our view that BI will cut interest rates twice more over the current easing cycle,” he added.

Indonesia has been grappling with weaker prices for key commodities like coal and palm oil as the world economy falters and demand dries up.

Economic growth eased to 5.05 per cent in April-June — the slowest quarterly expansion in two years — as exports and investment slipped.

That has thrown up a challenge for President Joko Widodo, who was re-elected this year largely on his promise to energise the economy with a roads-to-airports infrastructure blitz.

Indonesia’s economy has been expanding around five per cent annually, but that is well short of the seven per cent Widodo had pledged in his first term. — AFP

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