Indonesia: Central Bank cuts interest rates to 6.50%
October 11, 2011
At its 11 October monetary policy meeting, the Central Bank cut the benchmark interest rate by 25 basis points to 6.50%. The move constituted the first rate change since February, when the Bank raised interest rates by 25 bps. The decision surprised the market, which had expected the Bank to remain neutral, and might prompt other central banks in the region to follow suit and embrace a more accommodative approach amid the deterioration in global economic and financial conditions. The pre-emptive cut in interest rates aims at shielding the domestic economy from global headwinds. The rate cut follows similar moves from central banks in other emerging market economies such as Brazil and Turkey, which have already cut the policy rates and shifted their focus from battling inflation to buttressing GDP growth. Nevertheless, although inflation in Indonesia currently remains tame, upside risks to inflation persist, particularly given the anticipated rise in food prices across the region.