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24 November 2019

Bank Indonesia cuts reserve ratio in cautious easing move

After raising rates last year to curb a currency rout, Bank Indonesia has switched its focus to supporting growth amid a global slowdown and the US-China trade war.

Bloomberg/Dimas Ardian

Indonesia’s central bank left its key interest rate unchanged while pumping more liquidity into the financial system to stimulate Southeast Asia’s largest economy, reported Bloomberg.

Bank Indonesia kept the seven-day reverse repurchase rate unchanged at five per cent following four rate cuts this year. Banks’ reserve requirement ratio was cut by 50 basis points, the first such decision since June 2019.

After 100 basis points of rate cuts since July 2019, Bank Indonesia is taking a more cautious approach in providing stimulus to the economy, turning to additional instruments to spur lending. With growth likely to remain subdued amid a sluggish global outlook, the central bank governor said that there is still room for more policy easing, either through monetary levers or macroprudential tools.

Perry Warjiyo, the Governor of Bank Indonesia, said, “Monetary policy remains accommodative and is consistent with controlled inflation in the target corridor, going forward, the central bank will monitor domestic and global economic developments in using its room to implement an accommodative policy mix.”

However, the Coordinating Minister for Economic Affairs Airlangga Hartarto was quick to call for further easing, saying there is ‘quite a large room’ for the central bank to further cut the rate given benign inflation and a stable currency.

The central bank expects Indonesia’s economy to grow 5.1 per cent this year.


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