Indonesia Central Bank Delivers 6th Rate Cut of Pandemic, Relaxes Lending Rules

Indonesia
FILE PHOTO: Indonesia’s Central Bank Governor Perry Warjiyo speaks during a media briefing at Bank Indonesia headquarters in Jakarta, Indonesia, February 20, 2020. REUTERS/Ajeng Dinar Ulfiana

JAKARTA — Indonesia’s central bank cut interest rates for a sixth time during the pandemic and eased lending rules on Thursday in a bid to boost the coronavirus-hit economy as it downgraded its growth forecast for 2021.

Bank Indonesia (BI) cut the benchmark 7-day reverse repurchase rate by 25 basis points (bps) to 3.50%, the lowest since it began using the instrument as its benchmark in 2016. The move was forecast by a majority of 30 analysts in a Reuters poll. 

“This decision is consistent with expectations of inflation staying low, the rupiah remaining stable, and as a further step to push the momentum of the nation economic recovery,” Governor Perry Warjiyo told a virtual briefing.

The central bank cut its 2021 economic growth outlook to 4.3% to 5.3%, down from the 4.8% to 5.8% range previously, Warjiyo said, noting a weaker than expected fourth-quarter performance.

He also said BI would remove a downpayment requirement for vehicle loans and some mortgages from March until the end of the year.

The lending growth rate target for this year was also cut to a 5% to 7% range from a 7% to 9% range previously and Warjiyo warned he would name banks that did not lower lending rates.

The main stock index erased earlier gains to trade down 0.4% after the announcement, while the rupiah, which BI said was undervalued, remained unchanged.

Indonesia’s economy fell into recession for the first time in over two decades in 2020 as the government struggled to contain the coronavirus. Indonesia has the highest caseload and death tally from COVID-19 in Southeast Asia. 

To help soften the blow, BI last year delivered five rate cuts, totalling 125 basis points, pumped some $50 billion worth of liquidity into the financial system, and relaxed lending rules. The central bank last cut interest rates in November.

Despite this, the economy shrank 2.07% in 2020, the first full-year contraction since the Asian financial crisis in 1998.

Reporting by Gayatri Suroyo, Fransiska Nangoy and Tabita Diela; Editing by Ed Davies, Ana Nicolaci da Costa; Reuters

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