Indonesia: Central Bank cuts rates in June to support the economy
June 18, 2020
At its 17–18 June monetary policy meeting, Bank Indonesia (BI) cut the seven-day reverse repo rate to 4.25%. The Bank also reduced the deposit facility and lending facility rates to 3.50% and 5.00% respectively.
The Bank’s decision was aimed at boosting economic activity in the face of the Covid-19 pandemic. At the previous two meetings, BI stayed put as its desire to protect the rupiah trumped concerns over the economy. However, given the marked appreciation of the rupiah in recent weeks on rising investor risk appetite, the Bank felt it had room to cut rates in June without endangering currency stability.
The Bank remained highly dovish, stating it “still perceives space to lower interest rates in line with mild inflationary pressures, maintained external stability and the need to stimulate economic growth”. Most panelists see at least one more 25 basis-point cut before the end of the year.
According to Goldman Sachs:
“With policymakers at this meeting placing lower emphasis on external balance considerations relative to prior meetings, seemingly more comfortable with the IDR trajectory, and emphasizing the decline in global financial volatility, we see this as the start of a renewed easing cycle. We continue to see significant room to ease policy in coming months.”
Author: Oliver Reynolds, Economist