Another Indonesian Rate Cut

June 3, 2009

Bank Indonesia implemented an as-forecast 25-basis point cut of its policy rate to 7.0%.  It also eased by 25 bps in April and May and by 50 bps in each month of the first quarter.  The cyclical peak of 9.5% prevailed for just two months until a first rate cut of 25 basis points was made last December 4th.

More rate reductions seems likely.  The central bank’s statement projects lower inflation, which has dropped to 6.0% on year.  The rupiah is on firmer ground because of an improved balance of payments that has enabled officials to rebuild reserves.  Central bank officials want to see a bigger commercial bank response to its easing.  Growth is seen running between 3% and 4%, a bit less than officials would prefer.

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


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