Indonesian Policy Interest Rate Cut to 6.75% from 7.0%

July 3, 2009

Bank Indonesia implemented its eighth interest rate reduction since December 4th and fourth 25-bp move in a row as analysts had expected.  A signal that this string of cuts is drawing to a conclusion was also anticipated.  A statement from officials of the central bank advised that “future monetary policy would pursue a more prudent bias in view of the increasingly limited room for monetary relaxation.”  The statement revises up projected economic growth in 2009 but also speaks of a continuing declining trend in inflation to low levels by historical standards.  The statement talks about improving bank liquidity and observes that the rupiah has appreciated significantly of late.

From a peak policy rate of 9.5% that had prevailed for just two months, Bank Indonesia previously reduced such by 50 basis points each last December 4, January 7 and February 4 and by 25 basis points each on March 4, April 3, May 5, and June 3.  CPI inflation has dropped to 3.65% y/y from over 10% a year ago, and second-quarter GDP growth should be close to but probably below 4%.

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


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