Bank Indonesia Cuts Rates for 4th Month

Bank Indonesia lowered its 7-day reverse repo rate by 25bps to 5.0 percent during its October meeting, as widely expected. It is the fourth consecutive rate cut, bringing borrowing costs to the lowest since May last year, in an attempt to boost economic growth amid low inflation expectations. The overnight deposit and lending facilities were also trimmed by the same amount to 4.25 percent and 5.75 percent, respectively.
Bank Indonesia | Stefanie Moya | stefanie.moya@tradingeconomics.com 10/24/2019 7:57:44 AM
Excerpts from the Bank Indonesia press release:

Growth in the world economy has been slower, although financial market uncertainty has eased somewhat after the October 2019 US and China trade agreements. The weakening global economic growth was influenced by the continued decline in trade volume due to tense US-China trade relations and reduced production activities in many countries. The US economy is slowing down due to declining confidence in economic actors triggered by slowing exports, which then contributes to reduced non-residential investment and household consumption. Similar developments also occurred in the economies of Europe, Japan, China and India. This condition subsequently had an impact on the decline in global oil and commodity prices, which subsequently led to weak inflationary pressures. Various countries responded to this development by loosening monetary policy and providing fiscal stimulus. Meanwhile, the slight easing of uncertainty in the global financial markets has pushed capital inflows into developing countries. Going forward, various uncertainties from tensions between US and China trade relations and other geopolitical risks remain to be examined because they can influence efforts to encourage domestic economic growth and maintain inflows of foreign capital as a support for external stability.

The world economy that has not been conducive has influenced the growth of the domestic economy. Export growth improved slightly, although still experiencing a contraction, amid global demand and declining global commodity prices. The improvement in exports was influenced by, among others, manufactured export products such as motor vehicle exports to ASEAN countries and gold exports which grew positively. Investment, particularly non-construction investment, is not yet strong, but the results of the latest survey show that it will increase again in quarter IV-2019 supported by the increasing confidence of business operators. Meanwhile, the growth of building investment was quite good driven by the development of national strategic projects. Stable growth in household consumption is supported by low inflation and government social assistance. 

Inflation remains under control at a low and stable level. On annual basis, inflation in September 2019 was recorded at 3.39% (yoy), lower than the inflation in August 2019 at 3.49% (yoy). This development was influenced by the Consumer Price Index (CPI) for September 2019 which recorded a deflation of 0.27% (mtm), after inflation in the previous month recorded 0.12% (mtm). Controlled inflation is influenced by stable core inflation supported by good inflation expectations in line with Bank Indonesia's policy consistency in maintaining price stability, well-managed aggregate demand, exchange rates that move in accordance with its fundamentals, and minimal influence of global prices. In addition, volatile food inflationwhich again experienced deflation as falling prices for some food commodities and low administered prices inflation also contributed positively to controlled inflation. Going forward, Bank Indonesia remains consistent in maintaining price stability and strengthening policy coordination with the Government, both at the central and regional levels, to ensure inflation control. 2019 inflation is predicted to be below the midpoint of the target range of 3.5 ± 1% and maintained within the target range of 3.0 ± 1% by 2020.

Bank Indonesia Cuts Rates for 4th Month