Indonesia cuts interest rate as Fed stays put

Bank Indonesia shaved 25 basis points off its seven-day reverse repurchase rate yesterday. The loosened monetary policy is to help bolster South-east Asia's biggest economy that is growing well below the 7 per cent target set by President Joko Widodo
Bank Indonesia shaved 25 basis points off its seven-day reverse repurchase rate yesterday. The loosened monetary policy is to help bolster South-east Asia's biggest economy that is growing well below the 7 per cent target set by President Joko Widodo when he took office two years ago.PHOTO: REUTERS

Philippines central bank keeps steady at 3%; Australia, New Zealand to cut their rates later

JAKARTA • With the US Federal Reserve holding off on raising interest rates, South-east Asian central banks are taking divergent approaches to monetary policy.

Bank Indonesia (BI) shaved 25 basis points off its seven-day reverse repurchase rate yesterday to 5 per cent, moving while inflation was also at its lowest to cut the benchmark rate for the fifth time this year.

Its Philippines counterpart stood pat weighing possible future tightening to guard against price pressures from a rapidly growing economy, while Australia and New Zealand said they would cut rates later.

Indonesia's loosened monetary policy is to help bolster South-east Asia's biggest economy that is growing well below the 7 per cent target set by President Joko Widodo when he took office two years ago.

BI governor Agus Martowardojo indicated more easing might be ahead. "We are monitoring... if all economic indicators are maintained, we are still in an easing condition, a loosening condition. And this loose condition will continue until the end of this year to early 2017," he said. The rupiah strengthened 0.4 per cent to 13,090 a US dollar yesterday, according to prices from local banks. It has gained 5.3 per cent this year, the third-best performer against the US dollar in Asia. It was trading 9,651.24 rupiah against the Singdollar.

By dallying over raising interest rates, the United States Federal Reserve has made it easier for central banks in the Asia-Pacific to stay dovish. The Philippines central bank held policy interest rates steady at 3 per cent as economic growth remained healthy. New Zealand's central bank kept its benchmark interest rate at 2 per cent, remaining an outlier in a world of ultra-low or negative interest rates, but the high New Zealand dollar and tepid inflation may soon spur it to cut.

  • 5%

    Policy rate set by Bank Indonesia yesterday to nudge economic growth higher.

    5.3%

    What the rupiah has gained this year against the greenback.

Newly-minted Reserve Bank of Australia governor Philip Lowe gave an optimistic assessment of the economy in his first public appearance yesterday, telling a parliamentary committee that the lower rates get, the less effective cuts become in boosting the economy.

However, he held open the possibility of further cuts in rates which are already at record lows.

BLOOMBERG, REUTERS

A version of this article appeared in the print edition of The Straits Times on September 23, 2016, with the headline 'Indonesia cuts interest rate as Fed stays put'. Print Edition | Subscribe