Bank Indonesia to gradually cut policy rate, vice president says

[JAKARTA] Indonesia's vice president said the country will gradually cut interest rates, putting pressure on the central bank to ease policy after a report this week showed the economic slowdown was deepening.

Bank Indonesia should cut its benchmark policy rate without deterring people from putting money in the bank, Vice President Jusuf Kalla told reporters in Jakarta on Thursday, after meetings between the government and central bank.

Indonesia's President Joko Widodo wants to lift economic expansion toward 7 per cent, yet gross domestic product growth slowed to 4.7 per cent in the first three months of the year, the weakest pace since 2009. The central bank is juggling government pressure to support the economy against efforts to curb inflation, a persistent current-account deficit and to prop up the rupiah, Asia's worst performing currency this year.

"We don't think Bank Indonesia has the space to cut policy rates near-term," said Hak Bin Chua, an economist at Bank of America Merrill Lynch in Singapore. "Markets may not take a rate cut well and the rupiah will likely see a selloff." The rupiah traded down 0.4 per cent at 13,093 a dollar as of 10.39 am in Jakarta, little changed after Mr Kalla's comments, according to prices from local banks.

Bank Indonesia, which next meets on May 19, will coordinate with the government and be data-dependent in setting its policy mix, Governor Agus Martowardojo said on Wednesday. The central bank has previously said it was maintaining a tight policy bias, after holding rates for the past three months.

BLOOMBERG