Indonesia’s central bank cut reserve requirement on Thursday but kept its benchmark interest rate unchanged at 5%.
The unchanged rate is widely expected because the central bank has trimmed its key rate by 100 basis point in four previous back-to-back policy meetings.
Bank Indonesia Governor Perry Warjiyo said the bank would lower the reserve requirement by 50 basis points from Jan 2, 2020 and free up 26 trillion rupiah (US$1.84 billion) of additional liquidity.
The central bank has cut its outlook for loan growth to 8% this year from the previous 10-12%.
According to Warjiyo, loan growth suffered from slow demand from corporations though the central bank has loosened lending rules in an overall policy mix that the governor described as "pre-emptive measures" to maintain economic growth momentum amid a global economic slowdown.
While being the largest economy in Southeast Asia, Indonesia’s growth slowed to 5.02% in Q3, the slowest in more than two years, as a result of the US-China trade war.
Warjiyo said GDP was likely to improve in Q4 due to seasonal patterns. The central bank estimated that GDP will grow 5.1% and inflation to hit 3.1% in 2019.
BI’s forecast for 2019 GDP growth was 5.1%, he said, in line with previous estimates.
Door open for further easing in 2020
Despite the pause, the central bank retained its policy stance as “accommodative” signalling that it remains open to further rate cuts given the benign inflation outlook and relative underperformance in terms of GDP, said Nicholas Mapa, senior economist, Philippines at ING.
In his statement, Warjiyo did note that the current policy setting is consistent with the Bank's outlook on inflation as the central bank looks to provide the economy with a shot in the arm after its recent string of rate cuts, Mapa added.
“We expect the central bank to monitor GDP performance in the coming months while also keeping a close eye on the Indonesian rupiah, should it stray from its appreciation bias in 2019,” he noted.
With inflation expected to remain within target going into 2020, the central bank may resume its easing cycle in early 2020 to give growth momentum an added boost, given the possibility of an escalation in global headwinds, Mapa predicted.
