Bank Indonesia Cuts Benchmark Interest Rate to 6.5% from 6.75%

August 5, 2009

As widely forecast, Indonesia’s central bank implemented a ninth consecutive monthly rate cut.  Six of these, including today’s, were by 25 basis points, while the three made during the first quarter of 2009 amounted to 50 basis points each.  Today’s cut was justified by “limited domestic demand” and lower inflation.  However, a statement released by policymakers predicted overall GDP growth of between 3.5% and 5% this year and flagged the likelihood that inflationary pressures will be building in 2010.  In order to meet next year’s inflation target of 5%, the implication of the statement’s warning about inflation is that today’s rate reduction may be the last one of the cycle.  Inflation stands currently at 2.7% and as always will be influenced by commodity price developments.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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