The third interest rate cut in three consecutive months reflects grave concerns of a possible global shock that may drag down Indonesia's economic growth. (Antara Photo/Sigid Kurniawan)

Bank Indonesia Continues Aggressive Loosening Moves

SEPTEMBER 19, 2019

Jakarta. Bank Indonesia, the country's central bank, continues its dovish monetary stance by cutting its benchmark interest rate by a further 25 basis points to 5.25 percent on Thursday, at the same time loosening a liquidity requirement for banks and lowering the down payment requirement for mortgage and vehicle loans. 

This was the third time the central bank cut its interest rate in three consecutive months, reflecting grave concerns for a possible global shock that may stutter Indonesia's economic growth.  

"Tension in trade relations between the United States and China that has dragged on, followed by increasing geopolitical risks, continued to put pressure on the world economy and kept uncertainties in global financial markets," Bank Indonesia said in a statement. 

"Indonesia's economic growth was also affected by these unfavorable global economic conditions," it said.

The World Bank has warned Indonesia there is a risk that the country's growth may slide below 5 percent next year amid slowing global trade and severe capital outflow. 

But, Bank Indonesia said it hoped its dovish stance, combined with the government's continued spending on infrastructures and social transfers, would maintain growth in Southeast Asia's largest economy at between 5.0 and 5.4 percent this year and 5.1-5.5 next year. 

On Wednesday, Bank Indonesia also loosened a liquidity requirement for banks. Under the new stipulations, lenders can include loans – in rupiah or foreign currency, with at least a one year term – they receive from other lenders as a funding source to determine their capacity to lend out money.

Earlier, the central bank had limited banks' funding sources to customer deposits and securities products like medium-term notes and bonds. Bank Indonesia said in March the banks could disburse loans up to between 84 and 94 percent of their funding sources, up from 80 to 92 percent. 

The central bank also lowered by 5 percentage points the downpayment for house and vehicle purchases in Indonesia, the majority of which are done using loans. Earlier, people buying their second and subsequent home need to pay between 20 to 30 percent of the house price in downpayment, depending on the size of the house and the number of houses they own before the purchase. 

First-time homebuyers remain excluded from the requirement to pay a downpayment for a mortgage.

Downpayment for motorcycle and car purchases was cut to 15 percent – or 10 percent for electric vehicles – from 20 percent and 25 percent, respectively. 

Commercial vehicle purchases using loans now only require a 10 percent downpayment from 15 percent earlier. It can be further reduced to 5 percent if the vehicles are powered by electricity.