Indonesia: Bank Indonesia cuts interest rates
June 16, 2016
At its 15–16 June monetary policy meeting, Bank Indonesia cut the BI policy rate from 6.75% to 6.50%. The move represented the fourth rate cut this year and surprised market analysts who expected the Bank to hold rates. Accordingly, the Bank also cut the deposit facility rate and the lending facility rate to 4.50% and 7.00%, respectively. In addition, the Bank lowered the BI seven-day (reverse) repo rate, which will become the new benchmark for monetary policy on 19 August, from 5.50% to 5.25%.
The Central Bank noted that it took its decision amid a backdrop of macroeconomic stability, low inflation and a subdued domestic economy. Inflation remained within the Bank’s target range of 4.0% plus/minus 1.0 percentage points in May, the current account deficit narrowed and the exchange rate was relatively stable recently. While the Bank expects GDP growth to pick up from Q1’s disappointing result in Q2, Bank Indonesia noted that the uptick in Q2 will likely be softer than previously expected, particularly because of lackluster private fixed investment in the non-construction sector. For this reason, Bank Indonesia perceived, “the need for additional measures to stimulate domestic demand and, therefore, strengthen economic growth momentum.”