Bank Indonesia, the Southeast Asian nation’s central bank has signalled an end to the monetary tightening cycle that began last year by cutting a key interest rate.
The bank cut the seven-day reverse repo rate, its benchmark rate by 25 basis points to 5.75 percentage on Thursday. Bank Indonesia also slashed the lending and deposit rates to 6.5 percent and 5 percent, a reduction of 25 basis points.
Meanwhile, economic data revealed on Tuesday pointed that the Indonesian economy was slowing. Media reports attributed this slowdown as partly due to the ongoing US-China trade war.
Bank Indonesia while making the rate cut noted that the country needed to boost domestic growth while external pressure had eased. The decision was spurred by low inflation and the need to boost growth.
Speaking on the rate cut Bank Indonesia governor Perry Warjiyo said that the bank sees further potential for monetary policy easing taking into consideration low inflation and need to boost growth.
The Indonesian central bank had embarked on a monetary policy tightening cycle from May to November 2018. Bank Indonesia took the tightening stance to stabilise the country’s current account balance.
Warjiyo said that the monetary policy will be accommodative going forward. This means that the Bank Indonesia could further ease liquidity or cut the interest rate.
Although Indonesia had recorded two months of trade surplus to June, the country’s exports declined. Import of auxiliary raw materials also slowed reflecting slower production and therefore lower investment.