C.bank 2020 rate cuts now amount to 100 bps
Governor says to synchronise policy with fiscal stimulus
Says room for more cuts depends on inflation
By Gayatri Suroyo and Fransiska Nangoy
JAKARTA, July 16 (Reuters) – Indonesia’s central bank cut interest rates on Thursday for the fourth time this year, stepping up efforts to shore up Southeast Asia’s largest economy amid the coronavirus pandemic after recently agreeing to buy more government bonds.
Governor Perry Warjiyo said the economy likely shrank 4% in the second quarter from a year earlier, its first contraction since 1999, but added activity began improving in June as anti-virus measures were relaxed.
Bank Indonesia (BI) cut its 7-day reverse repurchase rate by 25 basis points to 4.00%, the lowest since at least 2016 when it adopted the rate as its benchmark, as expected by a slim majority of respondents in a Reuters poll.
“To support national economic recovery amid the COVID-19 pandemic, BI is emphasising more on strengthening synergy between monetary expansion and fiscal stimulus,” Warjiyo told a streamed news briefing.
The governor said quantitative easing measures were more effective to help the economy recover, provided the government accelerates its spending, and said further rate cuts would depend on indicators such as inflation.
BI and the government earlier this month unveiled a $40 billion debt monetisation scheme, with the central bank pledging to buy $28 billion of bonds while relinquishing interest payments. Warjiyo said there would be no inflationary impact for the debt monetisation scheme this year due to weak demand.
BI has now slashed interest rates by a total of 100 bps this year, on top of 100 bps of cuts in 2019.
BI’s decision “suggests that for now at least it is prioritising the economy over supporting the rupiah,” Capital Economics analyst Gareth Leather said, while predicting further easing due to the poor economic outlook.
BI did not mention in its statement on Thursday if it had changed its full-year GDP growth outlook, but said in June it expected growth to be in the range of 0.9%-1.9%, while the government expects GDP to either contract as much as 0.4% or grow by up to 1%.
Cities and provinces across the archipelago have eased coronavirus-induced restrictions in recent weeks, but the governor of Jakarta is reported to be considering reimposing them after a spike in cases in the capital.
Indonesia on Wednesday recorded its biggest daily jump of coronavirus-related deaths. It has registered 3,797 fatalities, the highest in East Asia outside China, out of 80,094 confirmed infections.
Indonesia stocks were steady after the announcement, while the rupiah currency, which had lost more than 1% in the last two days, weakened to 14,600 a dollar. ($1=14,594.0000 rupiah) (Reporting by Gayatri Suroyo, Fransiska Nangoy and Tabita Diela Editing by Ed Davies and Kim Coghill)
Reuters
