Indonesian central bank cuts rate to boost growth

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 on Wednesday cut key interest rates for the second time this year as it looks to boost economic growth.

Bank Indonesia lowered the seven-day reverse purchase rate by 25 basis points to 5.5 percent, the first cut since January. Its two other main rates were also slashed by 25 basis points.

The rate cut was “consistent” with low inflation forecasts, maintaining stability of the rupiah and to drive up growth, central bank governor Perry Warjiyo said.

“The decision is consistent with the low and controlled inflation estimate in 2025 and 2026 …, efforts to maintain the stability of the rupiah exchange rate in line with its fundamentals and to help encourage sustainable economic growth,” Perry told reporters.

READ: Indonesian central bank announces surprise rate cut

The rupiah had been under pressure recently and was trading near its lowest levels since the Asian financial crisis on the back of US President Donald Trump’s sweeping tariffs, which have since largely been paused for 90 days.

The currency has since recovered some ground as tensions eased after Washington and Beijing agreed last week to deescalate the trade war.

Indonesia’s rate cut was expected and analysts projected the central bank would ease monetary policy gradually due to global economic uncertainties.

“Looking ahead, the uncertain global environment means the exchange rate is likely to remain volatile over the coming months. As a result, the pace of further easing is likely to be gradual,” said Capital Economics senior Asia economist Gareth Leather.

He forecast the central bank would cut rates by a further 50 basis points this year.

READ: Cautious Asean seeks dialogue with US on tariffs