50-Basis Point Rate Cuts Announced in Indonesia and India

March 4, 2009

Bank Indonesia reduced its benchmark interest rate by 50 basis points to 7.75%.  Many analysts thought the cut would be by only 25 basis points. This was the fourth reduction since November 6th when the rate fell 25 bps to 9.25%.  A second and third cut on January 7 and February 4 were by 50 basis points.

The Reserve Bank of India also cut key rates by 50 basis points, a move that was expected after much weaker on-year growth of 5.3% in 4Q08 was reported, down from 7.6% in 3Q. Analysts had expected a 6.2% rate of year-over-year growth.  India’s central bank previous cut rates by 100 basis points on January 2, 100 basis points on December 6, 50 basis points on November 3, and 100 basis points last October 20th.  The repo rate now becomes 5.0%, down from a peak of 9.0%.

Statements released by the two central banks cited similar factors: global economic deterioration that is hitting exports, slower domestic growth, weaker sentiment, credit market pressures, and more subdued inflation.

CPI inflation is now near 9% in both of these economies and thus considerably above the new central bank rate levels.  The trend of inflation is downward in both cases, however, creating scope for additional easing of monetary policy in the future.

Click here to view Bank Indonesia’s statement.

Click here for the latest statement from the Reserve Bank of India.

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


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