Bank Indonesia chief sees low-rate environment lasting a long time

[JAKARTA] The global slowdown and trade war have created an environment in which "low interest rates for longer" is the new normal, Bank Indonesia governor Perry Warjiyo said.

The US-China trade war "isn't helping anybody" and only serves as a reminder that "if you prolong the game of thrones, the kingdom will fall apart", Mr Warjiyo told a conference in Jakarta on Tuesday, referring to the medieval fantasy TV series.

"Many central banks have become more dovish. Lower interest rates for longer, this is the tagline we now know."

While South-east Asia's biggest economy has been hovering around the 5 per cent growth level for several years, policymakers have become increasingly worried about spillover effects from the trade war. Bank Indonesia, which cut its key rate for a fourth consecutive month last week, now expects the economy to grow 5.05 per cent in 2019 before accelerating toward 5.3 per cent in 2020.

Key points:

"Starting this year, all of our instruments are for growth," Mr Warjiyo said

Bank Indonesia had said at its Oct 24 rate meeting that gross domestic product growth was expected below the midpoint of the 5-5.4 per cent forecast range this year, but now has a "more precise" forecast of 5.05 per cent growth.

Global growth is expected to be 3 per cent in 2019 and 3.1 per cent in 2020, but would be slower if the US-China trade war continues, Mr Warjiyo said

"We are seeing a more pessimistic view," Mr Warjiyo said, adding that central banks must utilise instruments other than interest rates to support stability and economic growth.

Indonesia should focus on new sources of growth, such as development of small and medium enterprises, digital economy and tourism.

Inflation seen below 3.5 per cent in 2019 and 2-4 per cent in 2020.

BLOOMBERG