Indonesia makes surprise rate cut

by **hlk** Fri 10 Feb 2012, 18:16

JAKARTA: Indonesia's central bank unexpectedly cut its policy rate by
25 basis points to 5.75%, after keeping it steady the past two months,
in a bid to ensure the economy maintains strong growth.
The cut
reinforces Bank Indonesia's position as one of the most dovish
worldwide. It has loosened policy as insurance against weaker global
growth even though there are concerns that inflation will rise this year
in Indonesia.
Bank Indonesia cut rates by 25 basis points (bps)
in October and 50 bps in November, signalling it was worried about a
possible repeat of the 2008 global downturn. But so far, the global
picture has not been that grim and potential price pressures at home may
force the central bank to walk a tightrope in designing its policy.
Indonesia
achieved 6.5% full-year growth last year, the highest since 1996, and
inflation in January further slowed to an annual rate of 3.65%, though
analysts said planned government fuel price hikes and pouring rains
could push up prices later this year.
Yesterday's surprise cut
“presumably really is a preemptive move to continue providing support
for the economy, as the central bank has highlighted downside risks to
growth and likely to revise its 2012 growth forecast very soon,” said
Gundy Cahyadi, an economist at OCBC Bank in Singapore.
“We
question the need for this rate cut, as credit growth and M2 money
supply growth have continued to be at high levels, and inflationary
risks remain in the picture,” Cahyadi said.
Twelve of 16 economists polled by Reuters
had expected Bank Indonesia to hold rates. Some changed their view to
hold from a rate cut after seeing a strong 6.5% growth in the last
quarter of 2011, with robust investment and private consumption
compensating for a slowing in export growth to single digit in November
and December.
South Korea's central bank, meanwhile, held its key
policy interest rate steady at 3.25% for an eighth consecutive month
yesterday, as it grapples with persistently high inflation and weakening
growth. - Reuters