Bank Indonesia lowers interest rates and stays dependent on Data-UOB

E. Tanuwidjaja, economist at UOB Group, gave his view on the recent Bank Indonesia (BI) decision.

Main quotations

"7-day Reverse Repo Rate Bank Indonesia (BI) was lowered by 25 bps to 5.00% during the October 2019 monetary policy meeting, consequently lowering the Deposit facility to 4.25%, and the loan facility to 5.75%. It marks the decline of the fourth interest rate since July 2019 amid measures to support slowing economic growth. BI said the policy is consistent with efforts to support domestic economic growth amid slowing global growth. BI predicts GDP growth of 2019 will likely be below 5.2% but will rise in the year 2020 in the range of 5.1-5.5%. BI forecasts the third-quarter GDP growth at 5.05%. Our GDP growth forecast of 2019 remained at 5.1% and slightly rose to 5.2% in 2020 ".

"BI responds to the problem of weakening consumer and retail purchases as a waiting attitude and see given the recently completed elections and the establishment of new legislative and cabinet… In addition, BI is comfortable with low and stable inflation rates and expectations will ensure fast recovery along with the possibility of a government cash transfer in support of low-income households ".

"In the future, BI states that the direction of monetary policy action will depend on data, including developments in the global and domestic economies. The Monetary Policy Act, according to the BI, will include not only a decrease in the benchmark interest rate, but also to decrease the reserve requirement, and other macroprulical measures ".

Source: FXStreet

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