Bank of Indonesia cut rates and remains data dependent – UOB

E.Tanuwidjaja, Economist at UOB Group, gives his views on the recent decision by the Bank of Indonesia (BI).

Key Quotes

“Bank Indonesia (BI)’s 7-day Reverse Repo Rate was lowered by another 25 bps to 5.00% during the October 2019 monetary policy meeting (MPC), consequently lowering the Deposit Facility to 4.25%, and the Lending Facility to 5.75%. This marked the fourth rate cut since July 2019 amidst moves to support slowing economic growth. BI said that the policy is consistent with efforts to support the domestic economic growth amidst the global growth slowdown. BI forecast that 2019’s GDP growth is likely to be below 5.2% but will pick up in 2020 in the range of 5.1-5.5%. BI expects Q3 GDP growth at 5.05%. Our 2019 GDP growth forecast remains at 5.1% and to increase slightly to 5.2% in 2020”.

“BI responded on the issue of weakening consumer and retail purchases as a wait-and-see attitude in light of the recently concluded election and the formation of the New Legislatives as well as the cabinet… Additionally, BI took comfort that low and stable inflation rate and expectations would ensure a quick recovery along with a likely government cash transfer in supporting the lower income households”.

“Going forward, BI stated that the course of monetary policy actions would be data-dependent, including the development in the global and domestic economy. Monetary policy actions, according to BI, would entail not only the lowering of the benchmark interest rates, but also including the lowering of the reserve requirements, and other macroprudential measures”.