ASEAN KEY DESTINATIONS
Indonesia: Rate cuts to lift growth, more likely to follow
Indonesia's central bank lowered its interest rate by half a percentage point to 8.25 percent, as expected, and indicated it could cut further to support growth in the face of a deteriorating world economy and declining exports, reported Reuters.
The move comes amid pressure from voters to bolster the economy ahead of parliamentary and presidential elections due this year. The central bank highlighted on Wednesday that the state of the world economy was more dismal than it thought a few months ago and that Indonesia was increasingly affected by it.
Bank Indonesia's senior deputy governor, Miranda Goeltom, said there was still room for further interest rate cuts BIPG, adding that the weakening in the rupiah currency was not a result of central bank's recent easing.
"There is still room for further rate cuts, especially if we find that inflation declines further and global growth gets weaker," Goeltom told reporters after cut.
"But regarding the size of the cut, we just have to wait for the data."Bank Indonesia (BI) was slow in cutting rates compared to other central banks as it struggled to bolster investor confidence in the battered rupiah while sustaining growth in Southeast Asia's biggest economy.
February's rate cut was the second consecutive 50-basis-point cut and analysts predicted that the period of aggressive rate cuts by the central bank is over. The bank has cut rates for three straight months from 9.5 percent in December.
"It's good for our economic growth. BI is concerned about economic growth," said Juniman, an economist at Bank Internasional Indonesia in Jakarta.
"Our exports have dropped and for January they are forecast to drop by 50 percent, illustrating the economic slowdown. So BI's consideration is that this is the time
to give a monetary stimulus through deeper cuts in the BI rate," he said.
The central bank has forecast economic growth of 4-5 percent this year, slowing from an estimated 6.2 percent in 2008, amid weakening demand for key commodities such as palm oil and rubber.
The government has proposed a stimulus package worth 71.3 trillion rupiah ($6.1 billion) including tax incentives for companies and individuals, cuts in fuel and electricity prices, and infrastructure spending to sustain growth.