Bank Indonesia surprises with 4th rate cut this year

[JAKARTA] Indonesia's central bank on Thursday surprised financial markets by cutting its main benchmark rates as policymakers seek to revive Southeast Asia's largest economy.

Bank Indonesia (BI) cut both of its current and future benchmark rates by 25 basis points (bpds) to 6.50 per cent and 5.25 per cent, respectively. The central bank will fully shift to the new benchmark starting Aug 19.

BI's two-day policy meeting ended just hours after the US Federal Reserve decided to keep its own benchmark interest rate unchanged.

Out of 19 analysts surveyed by Reuters, 13 had expected BI to hold the benchmark rate on Thursday and six forecast a 25 basis points cut.

Indonesia's central bank started an easing cycle early this year with three rate cuts totalling 75 basis points to try to prop up economic growth. The central bank has also reduced banks' reserve requirement ratio to effectively inject money into the financial system.

Indonesia's annual economic growth rate in the first quarter was a disappointing 4.9 per cent, forcing BI to cut its outlook for the full year. The central bank maintained its economic outlook of 5.0-5.4 per cent on Thursday, versus a forecast of 5.4-5.6 per cent earlier in the year.

In April, BI announced that on Aug 19, it will stop using its current benchmark and instead use the 7-day reverse repo rate, in an effort to help it have more influence on market rates.

BI's other monetary operation rates, the deposit and lending facility rates, were also cut by 25 bps to 4.50 per cent and 7.00 per cent, respectively, on Thursday.

REUTERS