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Dovish BI cuts interest rate for fourth time in four months

Jakarta Globe - October 24, 2019

Jakarta – Bank Indonesia, the country's central bank, has cut its benchmark interest rate by 25 basis points to 5 percent, the fourth time it has done so in the past four months, in an effort to stimulate the economy amid growing risks of a global economic slowdown.

Bank Indonesia is among many central banks in emerging economies that have been moving in tandem since the beginning of this year to ease their monetary policy.

Fleeting confidence has stifled investments in the United States, Europe, Japan, China and India, which in turn has lowered the volume of trade globally.

"Current global dynamics have exacerbated downside pressures on oil prices and international commodity prices, leading to mild inflationary pressures. In response, various countries have loosened monetary policy and introduced fiscal stimuli," Bank Indonesia said in a statement on Thursday.

The central bank said its latest dovish move "is consistent with controlled inflation and attractive returns on domestic financial investment assets,... a pre-emptive measure to stimulate domestic economic growth momentum against a backdrop of global economic moderation."

Bank Indonesia projected the largest economy in Southeast Asia would grow by close to 5 percent this year, slowing from 5.18 percent last year, before it would rebound to around 5.3 percent next year.

Inflation has been low so far by historical standard, and the central bank expected it to remain under control for the rest of the year. The headline inflation was at 3.39 percent in September, down from 3.49 percent a month earlier. Bank Indonesia expects inflation will be somewhere south of 3.5 percent this year and around 3 percent next year.

The central bank saw a net inflow of $4.8 billion in portfolio investments in the third quarter of 2019, which has helped with improving Indonesia's balance of payments.

"Looking forward, Bank Indonesia projects a manageable current account deficit in 2019 and 2020, around 2.5-3 percent of the gross domestic product, supported by a maintained influx of foreign capital," the bank said.

Source: https://jakartaglobe.id/business/dovish-bi-cuts-interest-rate-for-fourth-time-in-four-months