At its July monetary policy meeting on Thursday, Indonesia’s central bank, Bank Indonesia (BI), cut its 7-day reverse repo rate by 25bps to 4.00%, in line with expectations. The central bank cut the interest rates for the fourth time this year, ramping up efforts to fight the coronavirus pandemic-led economic blow.
A majority of economists polled by Reuters expected the central bank will trim the key rate to 4.00%, the lowest since at least 2016 when it adopted the rate as its benchmark.
The central bank Governor Warjiyo noted that the economy will continue to contract in the second quarter.
Additional comments:
Rising geopolitical tension between US and China increases financial market uncertainty.
Economic activity improves in June in line with easing of restrictions.
Capital inflows seen continuing despite some slowdown in early July.
Rupiah exchange rate moving towards fundamental value.
Rupiah still has room for appreciation against the US dollar.
To continue work to maintain inflation within 2%-4% target.
BI has injected 633.24 trillion rupiah of liquidity into financial system.
Hopes monetary expansion that so far has remained within banking system can be channeled to economy.
“Interest rate decision consistent with low inflation, taken to support economy amid virus outbreak.”
To further support econ recovery, c.bank to focus on synergizing monetary expansion with fiscal stimulus.”
FX implications:
On the Indonesian central bank’s expected rate cut announcement, the Indonesian Rupiah (IDR) reversed losses against its American counterpart.
The USD/IDR pair retreated from two-month highs of 14,687 on the rate decision. The cross now trades at 14,660, still up 0.60% on the day.
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