Indonesian central bank announces surprise rate cut

Indonesia’s Defence Minister and president-elect Prabowo Subianto attends a meeting with Vietnam’s President To Lam (not pictured) at the Presidential Palace in Hanoi on September 13, 2024. (Photo by Nhac NGUYEN / AFP)

Jakarta, Indonesia — Indonesia’s central bank on Wednesday unexpectedly cut key interest rates for the first time in more than three years as the rupiah strengthens and ahead of an expected US reduction later in the day.

Bank Indonesia lowered the seven-day reverse repurchase rate by 25 basis points to six percent, marking the first such move since early 2021. Its two other main rates were also cut by 25 basis points.

“The Federal Funds Rate direction is getting clearer, and the rupiah is relatively stable and even getting stronger,” bank governor Perry Warjiyo told reporters.

“These two factors are the reason why we lowered the interest rate right now.”

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The central bank had steadily increased borrowing costs to defend the rupiah amid growing global economic uncertainty and rising inflation.

But with price rises slowing, Perry said the decision to cut was consistent with the bank’s prediction that inflation would remain low in 2024 and 2025.

“With inflation under control and the rupiah rebounding against the US dollar, further cuts are likely,” said Gareth Leather, senior Asia economist at Capital Economics.

A World Bank report said in June that Southeast Asia’s biggest economy is expected to steadily grow over the next two years on the back of domestic consumption and investment despite weak exports.

A new government under Prabowo Subianto will take office next month and its 2025 budget is expected to outline an implementation plan for the new administration’s economic goals, and signal its fiscal policy stance.