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Bank Indonesia's Waluyo says room for rate cut ‘still open'

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Bank Indonesia Deputy Governor Dody Budi Waluyo said the central bank has room to cut interest rates further - perhaps as soon as next week.

[NEW YORK] Bank Indonesia Deputy Governor Dody Budi Waluyo said the central bank has room to cut interest rates further - perhaps as soon as next week.

Indonesia's economy has been holding up reasonably well in the face of a global slowdown, but policy makers increasingly are worried about risks to growth. Those concerns were reinforced this week when the International Monetary Fund forecast the world economy will grow this year by the slowest pace in a decade, and trimmed its projection for Indonesia.

In its latest World Economic Outlook, the IMF cut its 2019 global growth forecast to 3 per cent - down from 3.2 per cent in July - and revised its projection for Indonesia to 5 per cent from 5.2 per cent. The deteriorating outlook strengthens the case for further easing from Bank Indonesia, which has cut interest rates three times beginning in July, to 5.25 per cent currently.

"The room for another cut is still open," Mr Waluyo said in a Bloomberg Television interview with Kathleen Hays on the sidelines of IMF meetings in Washington. "I think we are able to make another cut as long the risks coming from the global, risks coming from the domestic, will not destroy our target," he said, referring to Bank Indonesia's inflation target.

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The central bank is targeting inflation of 2.5 per cent-4.5 per cent this year and 2 per cent-4 per cent for 2020. Price pressures currently remain subdued by Indonesian standards, with consumer inflation rising 3.39 per cent in September.

As global financial officials gather in Washington for annual meetings of the IMF and World Bank, trade tensions between the US and China remain one of the biggest threats to economies around the globe. Dimming prospects for the world economy have prompted calls for a more collaborative policy response from governments and central banks.

It was a similar theme last year when the annual meetings were held in Bali, where Indonesian officials led calls for better policy coordination internationally. Since then, governments have been trickling out stimulus and the global easing cycle has intensified, but the mood has darkened.

Even with "accommodative policies" already in place, the door is "still open" for a fourth straight rate cut at the bank's Oct 24 meeting, Mr Waluyo said.

"We need to support growth," he said.

The bank also must be mindful of risks to the currency, Mr Waluyo said, noting that if there's a chance of inflation moving above-target, or the current-account deficit causing currency volatility, that might lead the central bank to pause its rate cutting. However, the bank also has other levers it can use, including macroprudential policies, he noted.

Mr Waluyo identified global demand for Indonesia's exports - which contracted for an 11th straight month in September - as the biggest external risk to the country's economy. Without support from exports, he said, economic growth will be "sub-optimal."

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