Indonesia cuts key rate for third month in row

Inflation has been picking up, hitting 3.49% in August compared to a year earlier. (Reuters pic)

JAKARTA: Indonesia’s central bank cut its key interest rate for a third straight month to bolster growth amid a deepening global economic slowdown.

The seven-day reverse repurchase rate was lowered by 25 basis points to 5.25% Thursday, as predicted by 21 out of 28 economists surveyed by Bloomberg. The rest forecast no change.

The latest round of easing, after the Federal Reserve lowered US borrowing costs Wednesday, comes as trade tensions and now higher oil prices weigh on the global economy and threaten prospects for Indonesia, where growth is at a two-year low.

Indonesia raised interest rates by 175 basis points last year as it battled an emerging-market rout, but has since shifted focus to supporting economic growth. The government has already twice revised down its outlook for the economy for 2019, and now sees growth of about 5.1% versus an initial forecast of 5.3%.

Bank Indonesia sees growth coming in at the midpoint of its 5%-5.4% forecast range for this year, and the midpoint of a 5.1%-5.5% range next year.

Policy makers remain concerned about the current-account deficit, which widened to 3% of gross domestic product in the second quarter, although the small trade surplus last month may help to ease some of that pressure. Indonesia is reliant on foreign investors to finance the shortfall, making it vulnerable to outflows in times of volatility.

Inflation has been picking up, hitting 3.49% in August compared to a year earlier. While that was the fastest pace since December 2017, price-growth remains within the central bank’s target band of 2.5%-4.5%.