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View all search resultsIn surprise move, BI cuts rate to ‘push’ GDP growth
Bank Indonesia (BI) has unexpectedly made a back-to-back benchmark interest rate cut in its bid to bring out the true potential of the country’s gross domestic product (GDP) growth.
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Bank Indonesia (BI) Governor Perry Warjiyo talks during a livestreamed press briefing after the monthly Board of Governors meeting in June, 2020. (Courtesy of Bank Indonesia (BI)/-)
B
ank Indonesia (BI) has unexpectedly reduced its benchmark interest rate to support economic activity in the country, marking the second reduction in a row.
Following the central bank’s two-day monthly policy meeting, BI Governor Perry Warjiyo announced in a press conference on Wednesday that the key interest rate, the BI Rate, was cut by 25 basis points (bps) to 5 percent.
The decision was “consistent” with projected low inflation throughout this year and next, as well as with “maintained rupiah exchange rate stability and the need to push economic growth”, said Perry.
In May, the central bank had reduced its GDP projection for this year by 1 percentage point to between 4.6 and 5.4 percent because of a slowdown in global growth and disappointing domestic growth in the first quarter.
However, the governor sounded somewhat more optimistic on Wednesday when he explained that the actual result was likely to fall in the upper half of the projection range, meaning above 5 percent, in part thanks to the second quarter’s “better than expected” 5.12 percent growth.
Perry said BI also expected a strong export performance and expanded government spending to drive economic activity in the second half, but added that BI’s latest GDP growth projection still “remained below our potential economic capacity”.
He said the “output gap”, or the difference between the actual output of an economy and its potential output, was “still negative; meaning that our economic capacity is still bigger than demand”.
