Indonesian central bank announces surprise rate cut

Bank Indonesia’s logo is seen at Bank Indonesia headquarters in Jakarta, Indonesia, September 2, 2020. REUTERS/Ajeng Dinar Ulfiana/file photo

Jakarta, Indonesia — Indonesia’s central bank unexpectedly announced a cut in its key interest rate on Wednesday in a bid to boost economic growth and a weakening rupiah.

Bank Indonesia lowered the benchmark seven-day reverse repurchase rate by 25 basis points to 5.75%, citing a shift in policy to bolster stability and growth.

Its two other main rates were also cut by 25 basis points.

“The is the right timing to lower the interest rate to create a better growth story,” Bank Indonesia’s governor, Perry Warjiyo told a press conference.

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It marks the first rate cut since September.

Warjiyo said Bank Indonesia projected that economic growth would be slower in 2025 compared to last year.

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

London-based business research centre, Capital Economics, called the move a major surprise.

“The timing seems especially odd given policymakers have recently been rolling out more measures to support the currency,” Capital Economics’ researcher Gareth Leather said in a statement.

“Given the poor outlook for growth and with food and fuel prices likely to remain contained, inflation is unlikely to become a policy concern anytime soon,” he said.