Indonesia delivers rate cut as economic recovery stalls

[JAKARTA] Indonesia's central bank cut its benchmark interest rate to a record low and downgraded its growth outlook amid fears that a resurgence in Covid-19 cases is slowing its economic recovery.

Bank Indonesia on Thursday slashed the seven-day reverse repurchase rate by 25 basis points to 3.5 per cent, the lowest level since it was introduced in 2016. The move was expected by 22 out of 29 economists surveyed by Bloomberg, while seven forecast no change. Monetary authorities now have cut rates by a total of 150 basis points since the start of 2020.

Policy makers have signaled growing concern over the economy, as Indonesia's first recession in more than two decades threatens to spill over to this quarter after movement curbs were reimposed to control a surge in cases. Latest economic indicators have shown marked declines in imports, retail sales and consumer confidence.

Bank Indonesia, which had expected a turnaround as early as the fourth quarter of last year, recently has taken a more cautious tone, with Governor Perry Warjiyo saying Thursday that the bank was lowering its growth expectations. It now sees 2021 grow at 4.3 per cent to 5.3 per cent, down from its earlier forecast of 4.8 per cent to 5.8 per cent.

"Too low" inflation, yet another sign of how weak demand has become in Indonesia's consumption-driven economy, gives the central bank ample room to keep monetary policy loose, Mr Warjiyo said last week. Consumer prices rose by 1.55 per cent in January from a year earlier, well below this year's inflation target of 2 per cent-4 per cent. According to economists polled by Bloomberg, inflation will likely remain weak this quarter at 1.62 per cent, down from a previous estimate of 1.82 per cent.

BLOOMBERG

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