Further Monetary Easing as Bank Indonesia Cuts Benchmark Rate

BY :TABITA DIELA

SEPTEMBER 22, 2016

Jakarta. The central bank has cut its benchmark interest rate for the fifth time this year as it finds domestic inflation manageable, rupiah exchange rate relatively stable and current account deficit under check.

Bank Indonesia on Thursday (22/09) announced a cut in its benchmark 7-day reverse repurchase rate by 25 basis points to 5 percent and a cut in its overnight deposit facility and lending facility rate by 25 percent to 4.25 percent and 5.75 percent respectively.

The overnight deposit facility, also known as the Fasbi, is what Bank Indonesia pays to commercial lenders on funds they deposit at the central bank overnight, while the lending facility rate is the rate at which banks can borrow overnight funds from the central bank.

Bank Indonesia deputy governor Perry Warjiyo said in the press conference the central bank expects the move to boost lending from commercial lenders in the country, both from the supply and demand side.

A low interest rate environment is expected to stimulate the expansion of the private sector.

Perry said the central bank lowered its benchmark rate and statutory reserve requirements and eased the loan-to-value regulation to stimulate the economy.

"We are still at the stage of easing [the monetary policy]. This will continue until the end of the year or early 2017," he said.

Bank Indonesia expects Indonesia's economy to expand about 4.9 percent to 5.3 percent this year.

Analysts see room for further monetary easing in Indonesia, especially after the United States Federal Reserve kept its interest rates steady on Wednesday, despite earlier signals of tightening monetary policy to take place by the end of this year.

"I think Bank Indonesia's decision is positive and it was made at right moment," Samuel Asset Management economist Lana Soelistianingsih told Jakarta Globe.

She said an easing monetary policy environment will help offset the effect of the state budget spending cuts on the economic growth.

Additional reporting by Reuters.

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